HOMES

ryanshorthouse

Betterhomes

BETTER

HOMES

INCENTIVISING

HOME ENERGY

IMPROVEMENTS

Sam Hall and

Ben Caldecott


BETTER HOMES

Incentivising home

energy improvements

Sam Hall and Ben Caldecott


The moral right of the authors has been asserted. All rights reserved.

Without limiting the rights under copyright reserved above, no part

of this publication may be reproduced, stored or introduced into a

retrieval system, or transmitted, in any form or by any means (electronic,

mechanical, photocopying, recording, or otherwise), without the prior

written permission of both the copyright owner and the publisher of this

book.

Bright Blue is an independent think tank and pressure group for liberal

conservatism. Bright Blue takes complete responsibility for the views

expressed in this publication, and these do not necessarily reflect the

views of the sponsor.

Director: Ryan Shorthouse

Chair: Matthew d’Ancona

Members of the board: Diane Banks, Philip Clarke, Alexandra Jezeph,

Rachel Johnson

First published in Great Britain in 2016

by Bright Blue Campaign

ISBN: 978-1-911128-21-2

www.brightblue.org.uk

Copyright © Bright Blue Campaign, 2016


Contents

About the authors 4

Acknowledgements 5

Executive Summary 6

1 Introduction 19

2 Methodology 31

3 Trends in home energy improvements 33

4 Why the Green Deal failed 50

5 Policies for a new home energy improvement scheme 68

Annex: Written evidence 84

3


About the authors

Sam Hall

Sam is a Researcher at Bright Blue, where he works on the Green

conservatism project. His main policy interests are energy, climate

change, and the environment. Before joining Bright Blue, he was a

Parliamentary Assistant to Graham Stuart MP, where he researched

rural issues, energy and Latin America. Sam was educated at the

University of Oxford, gaining a BA and Master’s degree in Classics.

Ben Caldecott

Ben is an Associate Fellow at Bright Blue. He is also co-founder of

the Conservative Environment Network, Director of the Sustainable

Finance Programme at the University of Oxford’s Smith School of

Enterprise and the Environment, an Adviser to The Prince of Wales’s

Accounting for Sustainability Project, an Academic Visitor at the

Bank of England, and a Visiting Scholar at Stanford University. Ben

has a number of board and advisory panel appointments, including

with the City of London’s Green Finance Initiative, the University of

Oxford’s Socially Responsible Investment Review Committee, Green

Alliance, Carbon Tracker Initiative, the Natural Capital Declaration,

and the Conservative Environment Network. Ben has a number of

board and advisory panel appointments, including with the Green

Alliance, Carbon Tracker Initiative, Natural Capital Declaration, and

the University of Oxford’s Socially Responsible Investment Review

Committee.

4


Acknowledgements

This report has been made possible with the support of the

partners of Bright Blue’s Green conservatism project: European Climate

Foundation, Mineral Wool Insulation Manufacturers Association,

RenewableUK, RSPB, Tearfund, and the TUC. The views expressed in

this publication do not necessarily reflect the views of the sponsors.

We would like to thank Richard Braakenburg, Colin Faulkner,

Erica Hope, Sarah Kostense-Winterton, Caroline Kuzemko, Eoin

Lees, Ed Matthew, Mitya Pearson, Chris Roberts, Jan Rosenow, Arno

Schmickler, Tom Steward, Ian Temperton, and Chris Vinson for their

thoughts and advice.

We would also like to give special thanks to Ryan Shorthouse for his

advice and editing.

5


Executive summary

The UK government urgently needs to take steps to incentivise

improvements to households’ energy consumption. The end of the

government’s Green Deal in 2015 has left a deficit of policies for

encouraging home energy improvements. ‘Home energy improvements’

are important because they provide various private benefits (such as

cheaper energy bills in the long-term, better health outcomes, and more

financially valuable properties) and public benefits (such as greater

energy security, lower carbon emissions, and an economic stimulus).

In particular, if the government is to meet its target to reduce carbon

emissions by 80% by 2050, considering that residential buildings

constitute 22% of emissions, then many more homes will need such

improvements.

As will be outlined in Chapter One, home energy improvements are

both demand-side and supply-side measures, enabling households to

consume both less and greener energy. There are a number of measures

that households can install to improve their energy use. This report

will concentrate on two principal types of measures: ‘energy efficiency

measures’ and ‘decentralised renewables’. We focus on the ‘able to pay’

sector, which, for the purposes of this report, we define as the 13.2

million owner-occupier households in the UK that are not ‘fuel poor’. We

recognise, however, that there are some low-income households that are

not officially fuel poor, but struggle to pay their fuel bills. Earlier this year,

the Government published proposals to reform the Energy Company

Obligation (ECO), which will mandate energy suppliers to install energy

efficiency measures in the homes of the fuel poor.

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Executive summary

Focus of this research and the methodology

This report addresses the following research questions:

1. What are home energy improvements, the advantages and

disadvantages of different measures, and the recent trends in their

deployment?

2. What are the main experiences and policy lessons from the Green

Deal?

3. How can the government encourage more home energy

improvements, in particular deep retrofits?

In order to answer these research questions, we employed a number

of methods, described in detail in Chapter Two. First, we conducted an

extensive literature review of the main UK and international evidence.

Second, we conducted a number of interviews with independent

experts, government officials, and industry practitioners. Third, we

hosted a number of events to discuss the key themes and policy ideas in

this area, including an invite-only roundtable discussion with leading

decision makers and opinion formers, and a meeting of the advisory

board of Bright Blue’s Green conservatism project. Fourth, we put out

a call for written evidence for our home energy improvement project

and received 19 submissions from a range of organisations, which we

include in the annex of this report.

These research methods enabled us to identify: the different home

energy improvements available, their benefits and disadvantages, and

the recent trends (Chapter Three); and the experiences and policy

lessons of the Green Deal (Chapter Four).

Attributes of and trends in home energy improvements

Energy efficiency measures

This report focuses on four energy efficiency measures:

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• zSolid wall insulation. This measure adds insulation material to

either the inside or outside of solid walls to trap heat. It has the greatest

energy saving potential of £331 per year on the fuel bills of an average

household, but also the highest installation cost of between £4,000 and

£14,000. It has had the least progress of any measure with just 340,000

solid wall properties insulated in Great Britain. There are still 7.5

million solid wall properties without insulation.

• zCavity wall insulation. This measure injects insulation material

into the gap between a property’s two walls to trap heat. It saves

an average household £165 per year on their fuel bills, which is

less than the potential saving for solid wall insulation. But it has a

lower cost than solid wall insulation of between £500 and £1,500 to

install. The uptake has been strong to date with 14.3 million cavity

walls insulated in Great Britain, and 4.7 million without insulation.

• zLoft insulation. This measure places a layer of insulation material

on the floor of a property’s loft to stop heat escaping through the

roof. It saves an average household £121 per year on their fuel bills,

and it has the lowest cost of any the energy efficiency measures we

examine of between £100 and £350. Progress has been good with

nearly 17 million lofts now insulated in Great Britain. But there is

still great potential for further installations with seven million lofts

still requiring additional insulation.

• zDouble glazing. This measure replaces a home’s windows with two

glass panes, separated by a small gap, which traps heat. It has the

smallest saving for an average household of £71 per year on their

fuel bills. For such a small energy saving potential, it has a relatively

high cost of between £3,300 and £6,500 to install. 81% of English

households have had double glazing installed.

Decentralised renewables

This report focuses on three main decentralised renewable heat

8


Executive summary

technologies and two main decentralised renewable electricity

technologies.

Renewable heat technologies

• zHeat pumps. Heat pumps remove heat from outside sources

using electricity. Ground-source heat pumps extract heat from the

ground and their installation requires a large outdoor space. Airsource

heat pumps extract heat from the air and have fewer space

requirements. They both have lower fuel costs than conventional

gas boilers, and utilise existing electricity infrastructure. But there

are two principal barriers to take-up. First, high upfront cost:

ground-source heat pumps cost between £9,000 and £17,000 and

air-source heat pumps cost between £3,000 and £10,000. Second,

heat pumps do not have high flow temperatures, meaning that to

provide a home with sufficient heat, the property must be very

energy efficient. This can require the retrofitting of more energy

efficiency measures, together with more radiators. Air-source heat

pumps are the most popular renewable heating solution, with

22,000 installations to date under the Renewable Heat Incentive

(RHI), the government’s subsidy scheme to support domestic

renewable heating. But ground-source heat pumps are the least

popular measure, with just 7,000 installed so far under the RHI.

• zBiomass boilers. Biomass boilers burn renewable organic material,

such as wood pellets or purpose-grown crops, to produce

heat. Unlike heat pumps, they are able to provide similar flow

temperatures to condensing gas boilers. There are two main

barriers to uptake. First, they have a high upfront cost of between

£7,000 and £13,000. Second, there is limited availability of

sustainable biomass that doesn’t compete with food crops and

increase overall carbon emissions. Twelve thousand biomass

boilers have been installed under the RHI to date, making it the

second most popular renewable heating technology.

• zSolar thermal panels. Solar thermal panels fixed on a home’s

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rooftop produce heat using energy from the sun. They are the

lowest cost renewable heat technology, ranging from £4,000 to

£6,000. The main barrier to uptake is that they only produce heat

intermittently, and cannot be relied upon during winter. Eight

thousand installations of solar thermal panels have been accredited

under the RHI to date.

Renewable electricity technologies

• zSolar photovoltaic (PV) panels. Solar PV fixed on a home’s

rooftop produce electricity using energy from the sun. The upfront

cost of solar PV has fallen dramatically in the last four years by

over 40%. The average cost of an installation is now £6,750. There

have been over 800,000 installations of solar PV in homes under

the Feed-in Tariff (FIT) scheme, the government’s subsidy scheme

to incentivise decentralised renewable electricity. Domestic solar

PV represents around 3% of the UK’s total electricity generating

capacity.

• zBattery storage. This technology allows electricity to be stored

until there is demand and can be effectively combined with

household solar PV. It can overcome the problem of solar being

intermittent, enabling households to consumer more of the

electricity that they generate. Battery storage is currently rare

in the domestic sector, but costs are falling. For instance, Tesla’s

Powerwall domestic battery has recently been launched and is sold

for $3,500 in the US.

Take-up of energy efficiency measures has been mixed, with good

progress on the cheaper measures, but little progress on solid wall

insulation. It is estimated that 10% of the UK’s carbon emissions could

be saved by installing all the potential energy efficiency measures in the

domestic sector. Renewable heating technologies have had very poor

take-up, with just 2.5% of the UK’s heating demand coming from lowcarbon

sources. Air-source heat pumps have the greatest potential for

10


Executive summary

widespread deployment. While the deployment of the main renewable

electricity measure, solar PV, has been impressive in recent years, there

is still very significant scope for further installations. New government

policies will be required to accelerate all these improvements and to

ensure that important carbon emissions targets are achieved.

Why the Green Deal failed

The Green Deal was launched in 2013 to encourage able to pay

households to invest in a range of home energy improvements,

including those outlined above (excluding battery storage). The

then Energy and Climate Change Minister declared the ambition

“to improve 14 million homes by 2020 and a further 12 million by

2030”. The Green Deal allowed households to finance home energy

improvements with a loan that was repaid through their energy bills.

The ‘Golden Rule’ limited the amount that could be borrowed such that

the loan repayments could not exceed the estimated savings in energy

bills from the measures. The advantage of this innovative financing

mechanism was that it helped to remove the upfront cost of measures

to consumers.

However, the Green Deal had its funding withdrawn in mid-2015. It

is widely regarded to have failed. This report identifies four principal

failures:

• zLow take-up. Despite the ministerial ambition for the scheme,

only over 15,000 or so Green Deal finance plans were signed

between 2013 and 2015. These funded around 20,000 home energy

improvements.

• zFailure to leverage private investment. 97% of home energy

improvements between 2013 and 2015 were paid for by the Energy

Company Obligation (ECO) or one of the government’s subsidy

schemes. Just 1% of the measures was funded by Green Deal finance.

• zHigh cost to the taxpayer. The total cost to the taxpayer of the Green

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Deal was £240 million. This amounted to a public subsidy of £17,000

for each Green Deal plan that was agreed.

• zPoor interaction with ECO. ECO, under which energy suppliers

were mandated to install free energy efficiency measures, often acted

in competition with the Green Deal. Instead of blending with Green

Deal finance to fund more expensive measures, households chose to

install measures just using ECO.

The Green Deal’s most significant shortfall was poor take-up. We set

out four possible reasons for such low consumer demand:

• zUnattractive financial product. Average interest rates for the Green

Deal were between 7% and 10%. This was an unattractive rate of

interest compared to other forms of finance available to owneroccupiers,

such as mortgages. It was also unappealing when many

able to pay households have savings they can use to fund home

energy improvements. The combined effect of high interest rates

and long payback period of up to 25 years was that a large amount

of the total borrowed amount was financing costs. This was not a

compelling financial proposition to consumers. As a result of the

Golden Rule constraint, the average size of a Green Deal loan was

just £3,500, insufficient to finance expensive measures like solid wall

insulation or a heat pump. This left consumers with an uninspiring

set of options they could fund without paying an upfront lump sum

to meet the Golden Rule. It also prevented the financing of deep

retrofits under the scheme, which are required if the UK is going to

meet its legally-binding carbon emissions targets.

• zPoor communication of the scheme. The communication of the

scheme focused excessively on the scheme’s finance mechanism,

rather than the merits of the product itself. Consumer research has

found that comfort, health, and well-being are more effective ways to

communicate the benefits of home energy improvements.

12


Executive summary

• zPoor consumer journey. The design of the Green Deal failed to take

advantage of natural opportunities for improvements, or ‘trigger

points’, such as when a property is sold. Consumer research has found

that households are generally reluctant to agree to the disruption of

renovations, and that households are more likely to do home energy

improvements as part of other renovations. Consumers also found

the Green Deal process burdensome and complex, with just 2.5% of

Green Deal assessments resulting in a Green Deal plan being agreed.

• zProblems with the supply chain. Some consumers reportedly

experienced poor quality Green Deal installations, which

undermined confidence in the scheme. Around 11% of Green Deal

assessors and 14% of Green Deal installers were suspended from the

scheme because of poor workmanship. Supply chain research has

also revealed several barriers to new entrants: the high registration

fee to become accredited, the complexity of the accreditation

scheme, and the political uncertainty over the longevity of the Green

Deal scheme.

New policies

In Chapter Five, we make eight policy recommendations. These are

aimed at addressing the reasons we identified for low take-up of home

energy improvements under the Green Deal.

The policies we propose stem from two fundamental principles.

First, recognising fiscal realism: although we do not shy away from

proposing policies that carry a cost, available funding is constrained by

the government’s current fiscal position. Second, stimulating the market:

as the Green Deal failed to boost consumer demand, policies must

successfully leverage private investment into home energy improvements,

enable small businesses to flourish, and ultimately boost the productivity

of the economy.

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Improving the communication of the scheme

Recommendation one: introduce a new home improvement

scheme

We propose that the successor scheme to the Green Deal is rebranded

as a home improvement scheme. The old branding no longer has

the confidence of the public and relied too much on consumers’

being environmentally motivated. The new scheme should be seen as

mainstream home improvement, which increases comfort, quality of

life, and the value of the property. There should be a national network

of one stop shops to communicate the scheme to consumers, provide

them with all the information they need, and reduce the complexity of

the multi-stage process. In addition, the range of eligible home energy

improvement measures for the scheme should be expanded to include

smart appliances and battery storage, as well as energy efficiency

measures and decentralised renewables.

Making the finance package more attractive

Recommendation two: introduce ‘Help to Improve’ loans

We propose that the government offer ‘Help to Improve’ loans to

households, which would be a sister policy to ‘Help to Buy’. These loans

would utilise the ‘pay as you save’ mechanism from the Green Deal, but

would be larger (see recommendation four below) and have much lower

interest rates. The loans should be underwritten by the government

using the UK Guarantees scheme for infrastructure, which would reduce

the interest rate below what it was under the Green Deal by passing on

the government’s low borrowing costs. This major investment in the

UK’s infrastructure would provide a quick stimulus to the economy

while there is uncertainty following the EU referendum, and increase

productivity. The evidence from Germany, where the government also

provides low interest loans to individuals, is that the Treasury would over

time see a return on its investment.

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Executive summary

If the government wanted to control the short-term costs of the

scheme, a cap could be placed on the number of loans underwritten or

the size of loans that households could take out. Given the Green Deal

Finance Company is being sold, high-street banks could provide the

loans for the new home improvement scheme.

Recommendation three: introduce a new ‘Help to Improve ISA’

We propose that a ‘Help to Improve ISA’ is established to incentivise

households to save for home energy improvements, which would be

a sister policy to the ‘Help to Buy ISA’. The government would top up

dedicated household savings for home energy improvements by a fixed

percentage. This could be used to reduce the overall amount borrowed

under the scheme or the size of the loan repayments.

Recommendation four: scrap the ‘Golden Rule’ on home

improvement loans

We propose removing the ‘Golden Rule’ in the new home improvement

scheme, which prohibited loan repayments from exceeding the

estimated bill savings from the installation of the measures. Scrapping

the Golden Rule would enable an attractive combination of energy

efficiency measures, decentralised renewables, battery storage, and smart

appliances to be financed by the new home improvement loan without an

upfront lump sum being required. The Golden Rule was an unnecessary

consumer protection. Households should be given guidance on if their

bill might go up and by how much, making clear the assumptions used.

We should be providing consumers with the necessary information to

make an informed decision and avoid being paternalistic. Moreover, a

similar loan scheme in Germany has seen a very low default rate and

credit checks for new home improvement loans would still be required.

Recommendation five: integrate revenue households receive

from the Renewable Heat Incentive (RHI) and Feed-in Tariff

(FIT) into the new home improvement scheme

If households choose to finance the upfront cost of decentralised

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renewables with a new home improvement loan, the revenue they

qualify for under the RHI and FIT could be discounted from the

amount they repay each week. As subsidies via the RHI and FITs are

gradually phased out as renewables become cost competitive without

subsidy, home improvement loans could become the primary means

for government to support their deployment in the domestic sector.

Even if renewables are cost competitive without subsidy – as they now

are in many circumstances – households may still have trouble finding

the upfront capital to install them. The home improvement loans can

address this problem.

Strengthening regulation for consumers

Recommendation six: introduce minimum energy performance

standards for properties at the point of sale and when other

renovations on the property are carried out

We propose to regulate the energy performance of able to pay homes

both prior to the sale of the property and when non-energy home

improvement works are being carried out on the property. This would

help to drive consumer demand for home energy improvements. Costs

for households could be minimised if the government introduced

the regulations with a long lead-in time. The upfront cost faced by

households would be removed by the availability of the new home

improvement loans. The minimum standard of energy performance

could be increased over time to ensure government policy objectives

were achieved. The government could introduce exemptions for certain

households, such as multiple occupancy properties or listed buildings.

First, at the point of sale, households must by law acquire an Energy

Performance Certificate (EPC). A minimum EPC rating could be

mandated in order for the sale of the home to be permitted. Second, the

building code could be amended to mandate builders to improve the

home’s overall energy performance whenever renovations take place.

The costs of the home energy improvements could be capped so they

16


Executive summary

do not exceed a certain proportion of the overall cost of the building

works.

Bolstering the supply chain

Recommendation seven: offer free training and reduced

registration fees for small businesses and local tradespeople

We propose that the government provides free training sessions and

reduced registration fees for small businesses and local tradespeople.

This will help to attract more individual installers into the supply chain,

so that local customer networks and higher trust levels can be better

utilised in home energy improvements. Together with the previous

recommendation, it will also help to maximise the potential of trigger

points, such as when households undertake other renovations.

Recommendation eight: introduce a new, single accreditation

scheme for all installers of home energy improvements

We propose that the old accreditation frameworks for the Green Deal

and Microgeneration Certification Scheme for the installation of

decentralised renewables be replaced by a new, single accreditation

scheme. This will help to restore consumer confidence in the quality

of all home energy improvements and reduce the administrative

burden on local tradespeople and small businesses that were previously

deterred from getting Green Deal accreditation. Installers will be

able to upgrade their accreditation for the different types of home

improvement measures they are able to install.

Conclusion

There is an urgent need for many more households in the UK to retrofit

their homes, including energy efficiency measures and decentralised

renewables. The Green Deal established an innovative financing

mechanism and accreditation scheme to increase the take-up of home

energy improvements. But the policy failed to drive the necessary

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demand. The proposals in this report will address the main reasons for

low take-up, by stimulating the market for home energy improvements

in a way which is cost-effective for government.

18


Chapter 1: Introduction

Bright Blue’s Green conservatism project was established to develop

distinctive centre-right policies on energy, the natural environment,

and international development linked to sustainability. Among the

project’s stated aims are advocating cost-effective, market-based

solutions to climate change, harnessing technological innovation and

entrepreneurship to solve environmental problems, and encouraging

sustainable, long-term growth. Incentivising ‘home energy

improvements’, which is the focus of this report, is vital to achieving

these key aims. Following the failure of the Green Deal, there is now a

policy vacuum. New policies from government are urgently required to

encourage further progress in installing home energy improvements.

What are ‘home energy improvements’?

For the purposes of this report, ‘home energy improvements’ refer to

measures that make homes consume both less and greener energy. It

encompasses both reducing energy demand and decarbonising the

remaining energy supply.

On the demand side, home energy improvements include energy

efficiency measures, energy efficient appliances, and energy saving

behaviour.

The efficiency of household appliances, such as toasters or hoovers, can

be straightforwardly tackled with regulation of product standards, and so

will not be covered by this report. Similarly, there are policies in place to

encourage energy saving behaviour, most notably the national rollout of

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smart meters, which is set out in greater detail in Box 1.1.

Box 1.1. Creating a smart energy system in homes

A ‘smart energy system’ in homes gives households more

information and control over their energy consumption, enabling

them to shift their energy use to times of lower demand and

therefore cheaper tariffs. A domestic smart energy system is

underpinned by smart meters, and includes a range of smart

appliances and smart heating controls.

Smart meters provide customers and their energy suppliers with

near real-time information on a household’s energy consumption.

The Government has mandated that every household in the UK be

offered a smart meter by 2020 by their energy supplier. This will

require the installation of up to 53 million appliances in people’s

homes over the next four years. 1

By increasing the information available to households, smart

meters raise awareness of energy consumption, encouraging

homeowners to reduce their energy demand. Smart meters also

enable energy companies to make savings by ending the practice

of site visits and reducing the volume of consumer enquiries. These

savings are passed on to consumers in their energy bills.

Smart appliances, such as washing machines, refrigerators, and

dishwashers, are operated using an online remote control. They

can be switched off or turned down at times of high demand,

reducing stress on the electricity grid and potentially saving money

for the consumer.

Smart heating controls also operate using an online remote

control and are connected to the home’s smart meter. They have

1. Department for Energy and Climate Change, “Smart metering implementation programme”,

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/245736/smart_meters_

domestic_leaflet.pdf (2013), 2.

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Introduction

the same function as a thermostat, enabling greater control over

the temperature inside the home.

This report examines how energy efficiency measures can be

encouraged. We will focus in detail on the most common energy

efficiency measures: loft insulation, solid wall insulation, cavity wall

insulation, and double glazing in windows. Loft insulation consists of

a layer of insulating material applied inside a home’s loft to stop heat

escaping through the roof. Homes with a single wall can have solid wall

insulation added to the outside or inside of the property. Homes with

two walls and a gap in-between can have cavity wall insulation installed

by injecting insulation material into the gap. Double glazed windows can

be installed in a property, which consist of two separate sheets of glass to

trap heat.

There are also a number of other minor energy efficiency measures

that this report will not discuss in detail, but which can also contribute to

reducing a household’s energy consumption. These include: 2

• zDraught proofing consists of pieces of specialist material that

block openings in the home, such as gaps around windows or

doors, to stop heat being lost.

• zHigh-performance external doors can improve a home’s thermal

efficiency by stopping heat leaking out of doors.

• zCondensing gas boilers can be installed to replace older noncondensing

gas boilers to prevent heat being wasted.

• zEnergy efficient lighting systems can replace some older fittings,

which are only compatible with incandescent lamps, with fittings

that accept low energy lamps to improve efficiency.

• zUnder floor insulation consists of adding insulation material to

external, suspended or solid floors, so that the property retains

2. Department for Energy and Climate Change, “Illustrative savings for Green Deal improvement

measures”, https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/437645/

Illustrative_savings_for_Green_Deal_improvement_measures.pdf (2015).

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more heat.

• zHot water cylinder insulation adds a layer of insulation to the

outside of the cylinder, where the water heated by the home’s boiler

is stored, to stop heat loss.

• zFan-assisted storage heating can replace existing storage heaters for

space heating to reduce energy consumption.

On the supply side, home energy improvements consist of

decentralised renewable heating technologies and decentralised

renewable electricity technologies, which we collectively term

decentralised renewables.

The decentralised renewables that we will analyse in this report

are: heat pumps, biomass boilers, and solar thermal panels (heat

technologies), solar PV and battery storage (electricity technologies).

Heat pumps use electricity to remove heat from outside, usually from the

air or the ground. Biomass boilers burn wood pellets or specially-grown

crops to produce heat. Solar thermal panels heat water using warmth

from the sun. Solar PV, normally placed on roofs, create electricity using

the sun’s energy. Batteries store in chemicals surplus electricity generated

by solar PV, and deploy the energy when there is demand.

The homes this report will focus on

This report will focus on energy improvements in homes, or the domestic

sector. Separate policies are required to drive more energy improvements

for businesses (the non-domestic sector).

Within the domestic sector, there are three different kinds of

households: the private rented sector, social housing, and owner

occupiers. Of these, owner occupiers are by far the largest group,

representing around 64% of households in England. 3 Properties with an

3. Department for Communities and Local Government, “English housing survey: headline report

2014-15”, https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/501065/

EHS_Headline_report_2014-15.pdf (2016).

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Introduction

owner occupier have the lowest average energy efficiency rating. 4 As this

sector comprises the majority of homes and has some of the worst energy

consumption, it is the focus of our report.

Owner occupiers can be sub-divided into the fuel poor and the ‘able

to pay’. We recognise that there is a group of people that are not officially

fuel poor but nonetheless struggle to pay their bills. For the sake of this

report, however, we include these people within the ‘able to pay’ sector.

This report will focus on the ‘able to pay’ sector, which make up 92%

of owner-occupiers in England. 5 This group represents 13.2 million

properties in total, or 58.5% of all English households. The Government

has a separate policy to help the fuel poor, the Energy Company

Obligation (ECO), which is detailed in Box 1.2.

Box 1.2. Helping the fuel poor through the Energy Company

Obligation (ECO)

This policy aims to deliver the Government’s commitment to

improve the energy efficiency of one million homes across this

Parliament and to reduce fuel poverty.

Supplier obligations, set by government, give energy companies

targets of carbon savings they have to make from the emissions of

the homes of their customers. The government also sets criteria

about which homes are eligible for energy efficiency measures and

what measures can be installed. Energy companies then pass on

the costs of this scheme to consumers via their utility bills.

Previously, ECO had been focused jointly on reducing fuel

poverty, improving energy efficiency of properties in deprived

rural areas, and delivering more expensive energy efficiency

measures across all households.

4. Ibid., 35.

5. Department for Energy and Climate Change, “Fuel poverty: detailed tables 2013”, https://www.

gov.uk/government/uploads/system/uploads/attachment_data/file/437629/Detailed_tables_2015.

xls (2015).

23


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The Government recently released proposals for consultation on

the next version of the ECO. The new scheme will be reoriented

towards alleviating fuel poverty. 6 There are currently around 2.4

million people living in fuel poverty in the UK. 7 The reforms are

intended to reduce the costs of the scheme, and to ensure that

households that are able to pay for their own measures are not

given subsidies.

Why we should incentivise home energy improvements

There are both private and public benefits to home energy improvements

which justify action from government to incentivise them. 8

Private benefits

First, households can take greater personal control over their energy

by reducing their consumption and producing their own energy. 9

Consumer research shows that just under two thirds of people do not

think there is anything they can personally do about high fuel bills. 10

Carrying out home energy improvements, however, could significantly

reduce, or at least change, the role of big energy companies that seem to

be untrusted by consumers. 11 It would also protect households from big

changes or shocks in wholesale energy prices.

6. Department for Energy and Climate Change, “ECO: Help to heat”, https://www.gov.uk/

government/uploads/system/uploads/attachment_data/file/531964/ECO_Help_to_Heat_

Consultation_Document_for_publication.pdf (2016).

7. Department for Energy and Climate Change, “Annual fuel poverty statistics report, 2015”,

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/468011/Fuel_

Poverty_Report_2015.pdf (2015), 17.

8. For an extensive list of public and private benefits of energy efficiency measures, see Jim Lazar

and Ken Colburn, “Recognising the full value of energy efficiency”, http://www.raponline.org/wpcontent/uploads/2016/05/rap-lazarcolburn-layercakepaper-2013-sept-9.pdf

(2013).

9. E3G and The Fabian Society, “Taking back control”, https://www.e3g.org/docs/E3G-Fabians-

Taking_Back_Control-final.pdf (2015), 12.

10. Annex, Behaviour Change, 1.

11. A recent Department for Energy and Climate Change attitude survey found that almost 40%

of people do not trust their energy supplier to give them a good deal; see Department for Energy

and Climate Change, “Public attitudes tracker – wave 17”, https://www.gov.uk/government/uploads/

system/uploads/attachment_data/file/519488/PAT_Wave_17_Summary_of_key_findings.pdf

(2016), 6.

24


Introduction

Second, improving domestic energy use can stop waste heat escaping

from properties, making homes warmer and thus healthier. The

Marmot Review, which examined ways to reduce health inequalities

in England, found that countries which have more energy efficient

housing have fewer excess winter deaths, and that excess winter deaths

are almost three times higher in the coldest quarter of housing than

in the warmest quarter. 12 The study also found that there are different

health impacts for different demographics living in cold homes. Elderly

people are more vulnerable to pulmonary and respiratory disease.

Young people are more likely to experience mental health issues. Adults

are more likely to have slower recovery from illness and to contract

minor ailments like colds or coughs.

Third, home energy improvements will lower consumer bills in the

long-term. Energy efficiency measures reduce the amount of energy

required to heat a property, thereby lowering bills. Once the cost of

installing the measures has been paid off in the short-to-medium-term,

energy bills are permanently reduced. Likewise, there are long-term

benefits to consumer bills of installing decentralised renewables. For

instance, solar PV generate electricity with no marginal cost. So, once

a solar panel has been installed and the product paid for, it generates

electricity for free. This displaces electricity that would otherwise have

been purchased from the grid, reducing energy bills.

Finally, home energy improvements, like other household renovations,

increase the value of a property. Research by the Department for Energy

and Climate Change (Department for Energy and Climate Change)

found that a house which improves its rating on an Energy Performance

Certificate (EPC) is likely to have a higher value than when it had a

12. Marmot Review, “The health impacts of cold homes and fuel poverty”, http://www.

instituteofhealthequity.org/projects/the-health-impacts-of-cold-homes-and-fuel-poverty/the-healthimpacts-of-cold-homes-and-fuel-poverty-full-report.pdf

(2011), 26.

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Better Homes

lower rating. 13 Energy Performance Certificates give households an

energy efficiency rating from A (most efficient) to G (least efficient).

On average, a property with an A rating on the EPC sells for 14% more

than an equivalent property with a G rating on the EPC.

Public benefits

First, a greater number of home energy improvements will reduce

the UK’s carbon emissions and help mitigate climate change. The

Climate Change Act 2008 requires the UK to reduce its greenhouse gas

emissions by 80% on 1990 levels by 2050. Residential buildings make

up 22% of the UK’s total greenhouse gas emissions. 14

The Committee on Climate Change has advised that meeting the

2050 target cost-effectively will require much faster progress on

improving energy efficiency and decarbonising heat in homes. 15 Their

most recent report states that progress on both of these decarbonisation

options is currently stagnating. 16 The previous Coalition Government

stated in its Carbon Plan that by 2050 all buildings will need to have

emissions close to zero. 17 Home energy improvements are better than

other decarbonisation policies for the natural environment, because

they reduce the need to build new low-carbon generation, such as new

nuclear power stations or onshore wind farms, which can harm eco-

13. Department for Energy and Climate Change, “An investigation of the effect of EPC ratings

on house prices”, https://www.gov.uk/government/uploads/system/uploads/attachment_data/

file/207196/20130613_-_Hedonic_Pricing_study_-_Department for Energy and Climate Change_

template__2_.pdf (2013), 18.

14. This figure includes residential CO2 emissions, residential non-CO2 emissions, and the

residential sector’s share of power emissions. Committee on Climate Change, “Sectoral scenarios

for the fifth carbon budget: technical report”, https://documents.theccc.org.uk/wp-content/

uploads/2015/11/Sectoral-scenarios-for-the-fifth-carbon-budget-Committee-on-Climate-Change.

pdf (2015), 60.

15. Ibid., 58.

16. Committee on Climate Change, “Meeting carbon budgets – 2016 progress report to Parliament”,

https://documents.theccc.org.uk/wp-content/uploads/2016/06/2016-CCC-Progress-Report.pdf

(2016), 83.

17. Department for Energy and Climate Change, “The carbon plan: delivering our low carbon

future”, https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/47613/3702-

the-carbon-plan-delivering-our-low-carbon-future.pdf (2011), 5.

26


Introduction

systems and wildlife. 18

Second, home energy improvements make our energy supply

more secure, by reducing reliance on fossil fuel imports and lowering

demand for energy at peak times. Energy efficiency measures and

decentralised renewables have the potential to reduce our dependence

on imported natural gas, which constituted 62% of all the natural gas

consumed in the UK in 2015. 19 This would protect households from

international price spikes and any geopolitical events that cause the

supply of energy to be restricted.

It has been forecast that raising all homes to a band C rating on

an Energy Performance Certificate (EPC) would reduce gas imports

by 26% by 2030. 20 More energy efficient homes reduce energy

consumption in cold winter months when energy demand is at its peak,

taking pressure off the energy system. Energy improvements, if they

are part of a smart energy system as described in Box 1.1, can enable

homes to play a role in balancing the electricity grid. 21 This can help to

overcome the problem of intermittent renewable electricity generation.

Third, increased take-up of home energy improvements would

increase employment and economic activity in the UK. The sector of

the UK low-carbon economy which creates the highest number of jobs

is energy efficiency, employing 155,000 people in 2014. 22 It is estimated

that the economic impact of raising all homes to a band C on the EPC

would be the creation of 108,000 net jobs per annum between 2020 and

18. RSPB, “The RSPB’s 2050 energy vision: meeting the UK’s climate targets in harmony with

nature”, http://www.rspb.org.uk/Images/energy_vision_summary_report_tcm9-419580.pdf (2016),

24.

19. Department for Energy and Climate Change, “UK energy statistics, 2015 & Q4 2015”, https://

www.gov.uk/government/uploads/system/uploads/attachment_data/file/513244/Press_Notice_

March_2016.pdf (2016), 8.

20. Verco and Cambridge Econometrics, “Building the future”, http://www.energybillrevolution.

org/wp-content/uploads/2014/10/Building-the-Future-The-Economic-and-Fiscal-impacts-ofmaking-homes-energy-efficient.pdf

(2014), 29.

21. Maarten De Groote and Mariangiola Fabbri, “Smart buildings in a decarbonised energy system”,

http://bpie.eu/wp-content/uploads/2016/06/Broch-10-principles_160624_v4c.pdf (2016), 4.

22. Office for National Statistics, “Low carbon and renewable energy economy, final

estimates: 2014”, https://www.ons.gov.uk/economy/environmentalaccounts/bulletins/

finalestimates/2014#estimates-by-uk-country (2016).

27


Better Homes

2030, and an increase in relative GDP of 0.6% by 2030. 23

The economic benefits of incentivising home energy improvements

should be viewed in the same way as infrastructure investment, as they

comfortably meet government criteria. 24 Accelerating productivity

investment is required to stimulate the UK economy following the

vote to leave the European Union. 25 Incentivising home energy

improvements, therefore, would spur growth today, and increase the

UK’s long-term growth potential. 26

The Green Deal

The previous policy to incentivise home energy improvements in the

able to pay domestic sector, the Green Deal, failed. Launched in 2013, it

was set up so that consumers could pay for home energy improvements

through the savings on their energy bills. The energy efficiency

measures and decentralised renewables were funded by a loan, with

repayments added to fuel bills.

The scheme was closed in mid-2015, with just over 15,000 Green

Deal finance plans in operation. 27 The former Minister for Energy and

Climate Change had envisaged 14 million homes would be improved

by 2020 and a further 12 million by 2030 under the scheme. 28 Although

the legislation for the scheme remains in place, government funding

23. Verco and Cambridge Econometrics, “Building the future” Separate analysis by Frontier

Economics suggests that there would be £8.7 billion of net economic benefits to a major energy

efficiency infrastructure programme; see Frontier Economics, “Energy efficiency: an infrastructure

priority”, http://www.frontier-economics.com/documents/2015/09/energy-efficiency-infrastructurepriority.pdf

(2015), 13.

24. For example, Frontier Economics, “Energy efficiency: an infrastructure priority”; Ada Amon

and Ingrid Holmes, “Energy efficiency as infrastructure: leaping the investment gap”, https://www.

e3g.org/docs/E3G_Energy_Efficiency_as_Infrastructure.pdf (2016).

25. Ben Caldecott, “Accelerating productivity investment”, BusinessGreen, July 20, 2016.

26. Ben Caldecott, “Green and responsible conservatism”, http://www.brightblue.org.uk/images/

greenandresponsible.pdf (2015), 22-26.

27. Department for Energy and Climate Change, “Green Deal Finance Company funding to

end”, https://www.gov.uk/government/news/green-deal-finance-company-funding-to-end (2015);

Department for Energy and Climate Change, “Green Deal and Energy Company Obligation (ECO):

headline statistics (November 2015)”, https://www.gov.uk/government/statistics/green-deal-andenergy-company-obligation-eco-headline-statistics-november-2015

(2015).

28. Greg Barker, Green Deal and Big Society event, 20 June 2011, https://www.gov.uk/government/

speeches/greg-barker-speech-green-deal-and-big-society-event.

28


Introduction

has ended for the Green Deal Finance Company, which provided the

finance to Green Deal providers.

There is currently no active scheme for the able to pay sector. The

Government has indicated that it will bring forward proposals on a

successor later this year. 29 This report outlines what the attributes of this

successor should be.

Government urgently needs to improve how energy is consumed in

UK homes. But it’s not enough simply to build new homes with better

energy consumption. At least 80% of the housing stock that will be

standing in 2050, by when the UK’s greenhouse gas emissions must

have been reduced by 80%, has already been built. 30 A substantial

portion of the existing housing stock is therefore going to have to

be upgraded if key government objectives are to be met, such as

decarbonising our energy use and guaranteeing energy security.

As we will show in more detail in Chapter Three, significant progress

has now been made on installing cheaper energy efficiency measures,

such as loft insulation and cavity wall insulation. ‘Deep retrofits’ are

now required to make further progress. Deep retrofits are a building

method that upgrades the energy consumption of existing homes

by installing multiple energy efficiency measures and decentralised

renewables. This is in contrast to single home energy improvement

measures, which are installed in a piecemeal fashion.

Focus of the report

In this report, we explore the trends in two important forms of home

energy improvements: energy efficiency measures and decentralised

renewables. We diagnose the features of the Green Deal and propose

new policies to encourage home energy improvements, especially deep

29. House of Commons Energy and Climate Change Committee, “Oral evidence: home

energy efficiency and demand reduction enquiry”, http://data.parliament.uk/writtenevidence/

committeeevidence.svc/evidencedocument/energy-and-climate-change-committee/home-energyefficiency-and-demand-reduction/oral/27049.html

(2016), Q255.

30. UK Green Building Council, “Low carbon existing homes”, http://www.ukgbc.org/sites/default/

files/Low%2520carbon%2520Existing%2520homes.pdf (2008), 1.

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Better Homes

retrofits, in the able to pay sector.

The report will seek to answer the following research questions:

1. What are home energy improvements, the advantages and

disadvantages of different measures, and the recent trends in their

deployment?

2. What are the main experiences and policy lessons from the

Green Deal?

3. How can the government encourage more home energy

improvements, in particular deep retrofits?

The report is structured as follows:

• zChapter Two describes the methodology employed, including

an extensive literature review, stakeholder consultation, policy

roundtable discussions, and a call for written evidence.

• zChapter Three describes the main home improvement measures,

analyses their benefits and disadvantages, and the current trends

in their deployment.

• zChapter Four outlines the experiences and policy lessons

of the Green Deal, focusing on the finance mechanism, the

communication of the scheme, the consumer experience, and the

supply chain.

• zChapter Five makes a number of policy recommendations for how

the government could introduce a new scheme to incentivise more

home energy improvements in the able to pay sector.

30


Chapter 2: Methodology

This report seeks to examine the trends, and the advantages and

disadvantages, of the principal options for installing energy efficiency

measures and decentralised renewables in people’s homes. It analyses

why the Green Deal failed and what the main policy lessons were.

It then goes on to outline new policies to devise a successor to the

Green Deal and increase home energy improvements, especially deep

retrofits.

This report focuses on two forms of home energy improvements: first,

energy efficiency measures such as loft insulation, solid wall insulation,

cavity wall insulation, and double glazing; second, decentralised

renewables, for both heat and electricity.

Excluded from this report are considerations of how to incentivise

energy improvements in the non-domestic, social housing, and private

rented sectors. Instead, we will focus on the able to pay sector among

owner occupiers. This is because this comprises the largest group of

properties. It consists of 13.2 million households, which makes up 58.5%

of the total number of properties. Without significant improvements

in the energy consumption of this sector, key government targets on

decarbonisation and security of supply will not be met.

Research techniques

We employed four research techniques in this project:

z • Literature review. We conducted an extensive literature review of

the main UK and international evidence. We looked at relevant

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academic journals, think tank reports, publications from industry

groups and trade bodies, and government studies and datasets.

• zStakeholder consultation. We conducted a number of interviews

with independent experts, government officials, and industry

practitioners.

• zPolicy roundtable discussions. We hosted an invite-only

roundtable discussion under the Chatham House rule in May 2016

with leading decision makers and experts. We also held a meeting

of the Green conservatism advisory board in June 2016 to discuss

home energy improvements with leading centre-right politicians

and opinion formers.

• zCall for written evidence. We put out a call for written evidence

for our home energy improvement project. We received 19

submissions from a range of organisations with an interest in the

Green Deal and home energy improvements. We have published

the submissions we received in the annex of this report.

32


Chapter 3: Trends in home

energy improvements

As argued in Chapter One, it is essential that government incentivise

more home energy improvements – specifically, energy efficiency

measures and decentralised renewables – for various private and public

benefits. This chapter describes in greater detail the different energy

efficiency measures and decentralised renewables which are available,

their benefits and disadvantages, and recent trends in their usage.

Energy efficiency measures

Energy efficiency measures are demand-side responses to improving

home energy usage. They reduce a household’s energy consumption

while maintaining the ambient temperature of the home. They are

changes to the physical fabric of the building which prevent heat being

wasted. There are four main kinds of energy efficiency measures: solid

wall insulation, cavity wall insulation, loft insulation, and double glazing.

This section will describe each of these measures, and the recent trends.

Solid wall insulation

Solid wall insulation is the application of insulation material, such as

mineral wool or foam, to a solid wall structure to prevent heat escaping

the building. The insulation can be fixed either to the inside or the

outside of the wall. The oldest properties, built prior to the 1920s, tend to

have single, solid walls. 31 It is estimated that solid wall properties make up

31. Energy Saving Trust, “Home insulation: solid wall”, http://www.energysavingtrust.org.uk/homeinsulation/solid-wall.

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27% of the UK housing stock. 32

As shown in Chart 3.1, solid wall insulation has the greatest potential

to save households money, reducing energy bills for a semi-detached

house by an average of £331 per year.

However, as indicated by Chart 3.2, it is the most expensive energy

efficiency measure, costing between £4,000 and £14,000 for an average

semi-detached property.

Cavity wall insulation

Cavity wall insulation is the insertion of insulation material, such as

mineral wool or foam, into the gap between two walls to trap heat. 33

A cavity wall consists of two layers of material with a gap or cavity in

between. 73% of the UK’s housing stock has cavity walls. 34

As Chart 3.1 indicates, cavity wall insulation can save a typical

semi-detached property £165 on their annual energy bills. This is a

considerably lower saving than is possible with solid wall insulation, but

higher than the other measures.

Chart 3.2 demonstrates that cavity wall insulation is one of the

cheapest energy efficiency measures, with an upfront cost of between

£500 and £1,500.

Loft insulation

Loft insulation is the laying of insulation material, such as mineral wool

or foam, on the floor of a property’s loft to stop heat escaping through

the roof. 35 Some properties, however, have lofts that are not suitable for

insulation, and some properties do not have lofts. This group, ineligible

32. Element Energy and Energy Saving Trust, “Review of potential for carbon savings from

residential energy efficiency”, https://www.theccc.org.uk/wp-content/uploads/2013/12/Review-ofpotential-for-carbon-savings-from-residential-energy-efficiency-Final-report-A-160114.pdf

(2013),

11.

33. Energy Saving Trust, “Home insulation: cavity wall”, http://www.energysavingtrust.org.uk/

home-insulation/cavity-wall.

34. Element Energy and Energy Saving Trust, “Review of potential for carbon savings from

residential energy efficiency”, 11.

35. Energy Saving Trust, “Home insulation: roof and loft”, http://www.energysavingtrust.org.uk/

home-insulation/roof-and-loft.

34


Trends in home energy improvements

for loft insulation, represents around 15% of the UK housing stock. 36

As Chart 3.1 shows, a typical household can save approximately £121

per year on their household bills by installing loft insulation, giving it the

third ranked cost saving potential of the energy efficiency measures we

are examining.

It is the cheapest energy efficiency measure, costing between £100 and

£350 to install (see Chart 3.2).

Double glazing

Double glazed windows consist of two sheets of glass, separated by a

gap to trap heat. 37

Chart 3.1. Annual energy bill savings from different energy efficiency

measures for typical semi-detached properties

400

300

Annual Savings (£)

200

100

0

Solid wall insulation Cavity wall insulation Loft insulation Double glazing

Source: DECC, “Illustrative savings for Green Deal improvement measures”, (2015).

36. Element Energy and Energy Saving Trust, “Review of potential for carbon savings from

residential energy efficiency”, 23.

37. Energy Saving Trust, “Energy efficient windows”, http://www.energysavingtrust.org.uk/homeenergy-efficiency/energy-efficient-windows.

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Chart 3.1 shows that semi-detached households can save on average

£71 per year on their energy bills if they install double glazing. This is

the smallest energy saving of the measures we have examined.

Installation of double glazing would have an upfront cost of between

£3,300 and £6,500, as indicated in Chart 3.2. This is the second most

expensive energy efficiency measure we discuss.

Chart 3.2. Average cost ranges for energy efficiency measures

16000

14000

12000

Cost (£)

10000

8000

6000

4000

2000

0

Solid wall insulation Cavity wall insulation Loft insulation Double glazing

Source: DECC, “Illustrative savings for Green Deal improvement measures”, (2015).

Trends in energy efficiency measures

Chart 3.3 shows how levels of solid wall insulation are currently very

low, with just 340,000 solid wall insulated and 7.5 million solid walls

without any insulation. As shown in Chart 3.3, many cavity walls have

already been insulated, with 14.3 million cavity walls insulated and

just 4.7 million remaining to be insulated. Chart 3.3 shows that 16.8

million lofts have now been insulated, with 7 million lofts still requiring

additional insulation. The data on the number of double glazing

36


Trends in home energy improvements

installations has not been collected in the same way as for solid wall,

cavity wall and loft insulation. However, the most recent figures from

2014 show that 80.8% of English households have had double glazing

installed. 38 This shows that progress in installing this energy efficiency

measure in the housing stock is well advanced.

Chart 3.3. Completed and potential energy efficiency measures

under the Green Deal, up to June 2015

30

Number of energy efficiency measures (millions)

23

15

8

0

Solid wall insulation Cavity wall insulation Loft insulation

Source: DECC, “Green Deal, Energy Company Obligation (ECO) and insulation levels in Great Britain,

detailed report: to June 2015” (2015).

Energy efficiency measures have the potential to save households

significant amounts of money on their energy bills. The upfront cost for

these measures varies, but the initial capital outlay can often be recouped

through accumulated bill savings. For instance, the typical cost of cavity

wall insulation could be paid for by bill savings after six years and loft

38. Department for Communities and Local Government, “English housing survey 2014 to 2015:

headline report”.

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insulation after two years. 39 While many properties have now had cavity

wall insulation, loft insulation and double glazing installed, further

progress on solid wall insulation, the most expensive energy efficiency

measure, is essential to reduce domestic energy consumption. It has been

estimated that potential domestic energy efficiency measures could save

49 metric tonnes of UK carbon emissions each year, which is around 10%

of the current emissions total. 40

Decentralised renewables

‘Decentralised renewables’ refers to small-scale energy generators,

installed in individuals’ homes, that operate using renewable sources

of energy. These are used instead of conventional sources of energy

generation, such as condensing gas boilers for heating or gas-fired

power stations for electricity. Renewable sources of energy include

wind, sunlight, ambient heat from the air, and geothermal heat.

‘Decentralised’ refers to the fact that they are local generating

systems, not operated by national energy companies. As discussed in

Chapter One, decentralised renewables include both renewable heat

technologies and renewable electricity generation in homes.

Renewable heat

There are three main renewable heat technologies that can be deployed

by individuals in their homes in place of a gas boiler: ground-source

and air-source heat pumps, biomass boilers, and solar thermal panels.

Heating technologies are used both to heat space and water.

39. Department for Energy and Climate Change, “Illustrative savings for Green Deal improvement

measures”.

40. Element Energy and Energy Saving Trust, “Review of potential for carbon savings from residential

energy efficiency”, 4. Committee on Climate Change, “Meeting carbon budgets – 2016 report to

Parliament”, 11.

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Trends in home energy improvements

Box 3.1. The potential of district heat networks

A key policy in the Government’s strategy for decarbonising heat

is increasing the number of district heat networks. They are an

alternative distribution mechanism for heating from installing heating

generating systems in individuals’ homes, such as gas boilers. They are

a system of insulated pipes that carry heat from a centralised generator

to individual homes. The fuel can come from a range of sources,

including waste heat from power and industry sectors, energy from

waste plants, and river-source heat pumps.41 District heat networks

are delivered and financed by energy companies, government,

housing associations, and local authorities. Individual homeowners

do not install them themselves, and so they are not discussed in detail

in our report.

Heat networks are compatible with different heating

technologies. There are currently 2,000 heat networks in the

UK, supplying heat to around 21,000 homes. 42 They could

play a significant role in the future heating of the domestic

sector, in particular because of their potential to deliver lowcarbon

heat at scale. The Government has allocated £300 million

to heat networks over the course of the Parliament, 43 and

has produced a strategy to generate £2 billion of capital investment

in these schemes. 44

41. Frontier Economics and Imperial College London, “Research on district heating and local

approaches to heat decarbonisation”, https://documents.theccc.org.uk/wp-content/uploads/2015/11/

Element-Energy-for-CCC-Research-on-district-heating-and-local-approaches-to-heatdecarbonisation.pdf

(2015), 9.

42. Department for Energy and Climate Change, “Heat networks delivery unit”, https://www.gov.

uk/government/uploads/system/uploads/attachment_data/file/513884/HNDU_overview_round6_

April2016.pdf (2016), 4.

43. Her Majesty’s Treasury, “Spending Review and Autumn Statement 2015”, https://www.gov.uk/

government/uploads/system/uploads/attachment_data/file/479749/52229_Blue_Book_PU1865_

Web_Accessible.pdf (2015), 96.

44. Department for Energy and Climate Change, “Investing in the UK’s heat infrastructure: heat

networks”, https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/477898/

Heat_Networks_Invest_Guide_Nov2015.pdf (2016).

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Heat pumps

There are two main kinds of heat pumps, ground-source and air-source.

They both work by extracting freely-available, naturally occurring heat,

from the ground and the air respectively, using electricity. Groundsource

heat pumps require an outdoor space, and so their take-up

potential is limited to houses with sizeable gardens. 45 Air-source heat

pumps have fewer space constraints.

One major advantage of heat pumps is that they use existing electricity

infrastructure. By electrifying the heating sector, the UK would be

following the same policy approach to decarbonisation as that being

taken in the transport sector, where electric vehicles use existing

infrastructure. 46 Once operational, heat pumps also reduce fuel costs

for consumers and offer significant carbon savings per unit of heat

consumed. 47 But there are two main barriers to greater uptake of heat

pumps: high upfront cost and hassle for consumers.

First, heat pumps have a high upfront cost. Chart 3.4 shows the

relatively high costs of heat pumps compared to non-renewable gas-fired

condensing boilers, which cost between £2,200 and £3,000. 48 Groundsource

heat pumps, costing between £9,000 and £17,000, have higher

capital costs than air-source heat pumps, which cost between £3,000 and

£10,000. This is because of the additional work involved in the outdoor

excavations. 49

Second, installing heat pumps is a major hassle for households, as they

45. Carbon Connect, “Pathways for heat: low carbon heat for buildings”, http://www.policyconnect.

org.uk/cc/sites/site_cc/files/carbonconnect_pathwaysforheat_webcopy.pdf (2016), 41.

46. This assumes progressive decarbonisation of the electricity sector.

47. UCL Energy Institute, “Analysis of data from heat pumps installed via the Renewable Heat

Premium Payment (RHPP) scheme to the Department of Energy and Climate Change (Department

for Energy and Climate Change)”, https://www.gov.uk/government/uploads/system/uploads/

attachment_data/file/499194/Department for Energy and Climate Change_RHPP_160112_

Detailed_analysis_report.pdf (2016), 16-19.

48. Department for Energy and Climate Change, “Illustrative savings for Green Deal improvement

measures”.

49. Carbon Connect, “Pathways for heat: low carbon heat for buildings”, 47.

40


Trends in home energy improvements

can require major renovations to the building’s fabric. 50 For example,

because heat pumps produce heating at a lower temperature than

conventional heating systems, such as gas boilers, they often require new

heat emitters, such as radiators, to be installed. 51 For the same reason,

heat pumps also require homes to be highly energy efficient, as they are

insufficiently powerful to compensate for heat lost through walls and

roofs. In some cases, this necessitates the installation of additional energy

efficiency measures, which are outlined earlier in this chapter.

Chart 3.4. Cost range for principal domestic heating technologies

(renewable and non-renewable)

18000

16000

14000

12000

Cost (£)

10000

8000

6000

4000

2000

0

Air-source

heat pump

Ground-source

heat pump

Biomass boiler

Source: DECC, “Illustrative savings for Green Deal improvement measures”, (2015).

Solar Thermal

Biomass boilers

Biomass boilers burn organic fuel (‘bioenergy’), such as wood pellets

50. Richard Snape, Peter Boait, and Mark Rylatt, “Will domestic consumers take up the Renewable

Heat Incentive? An analysis of the barriers to heat pump adoption using agent-based modelling”,

Energy Policy (2015), 32-38.

51. Annex, Donal Brown (Centre for Innovation and Energy Demand), 3.

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Better Homes

and purpose-grown crops, to generate heat. Biomass boilers can be

installed effectively in properties that are not connected to the gas grid,

because they do not have to compete against condensing gas boilers on

cost. Similarly, where the heating demand in a building is too high to

be met by a heat pump, biomass boilers can be an effective solution.

The two main barriers to greater uptake are high upfront cost and

sustainability of bioenergy.

First, as Chart 3.4 shows, biomass boilers are the second most expensive

renewable heat technology, costing between £7,000 and £13,000.

Second, the potential for widespread deployment of biomass boilers

is limited by the availability of sustainable bioenergy. If the entire UK

heating demand was met using biomass boilers, it would use up 55% of

the global supply of wood pellets. 52 Furthermore, Department for Energy

and Climate Change has modelled the impact of carbon emissions for a

range of different scenarios for bioenergy in 2020. 53 They find that, under

some scenarios where demand for bioenergy is high, there are in fact no

carbon savings compared to fossil fuels because of land use change and

the release of previously stored carbon.

Solar thermal panels

This technology uses energy from the sun to generate heat. As Chart 3.4

demonstrates, solar thermal panels are the lowest cost renewable heat

technology. They can operate effectively in a property where another

heating solution, such as heat pumps, has been installed.

The uptake of solar thermal panels in the future is constrained by the

fact that the technology does not reliably generate heat in winter when

it is most needed (during cold weather), as the sun often does not shine.

52. Annex, Good Energy, 3.

53. Department for Energy and Climate Change, “Life cycle impacts of biomass electricity in 2020”,

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/349024/BEAC_

Report_290814.pdf (2014), 18.

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Trends in home energy improvements

Trends in renewable heating

Chart 3.5 shows the total number of accredited installations of renewable

heat technologies under the domestic Renewable Heat Incentive (RHI)

to date. 54 It shows that air-source heat pumps are the most popular

technology, with 22,161 installations, then biomass boilers with 11,612

installations, then solar thermal in third with 7,662 installations, and

finally ground-source heat pumps with 7,047 installations.

Chart 3.5. Number of accredited installations under the domestic RHI,

by technology, April 2016

24000

18000

12000

6000

0

Air-source

heat pump

Ground-source

heat pump

Source: DECC, RHI deployment data: April 2016 (2016).

Biomass boiler

Solar thermal

One major barrier to greater deployment of renewable heat

technologies is that our existing gas network is a huge sunk cost. Natural

54. The accredited installations under the RHI give a good reflection of the overall levels of

historic deployment. Although the domestic RHI only opened in April 2014, previously installed

renewable heat appliances were able to apply retrospectively for accreditation. See Department for

Energy and Climate Change, “RHI deployment data: April 2016”, https://www.gov.uk/government/

uploads/system/uploads/attachment_data/file/525028/RHI_monthly_official_statistics_tables_30_

April_2016.xlsx (2016).

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Better Homes

gas provides around 90% of our current heating demand. 55 It provides

cheap and abundant fuel to households, and utilises an existing network

which companies have invested in and consumers have paid for through

their utility bills. 56

Another important barrier is a lack of awareness of renewable heat

technologies and government funded incentives for them. Only 5%

claimed to know a lot about the different renewable heat technologies

in Department for Energy and Climate Change’s recent public attitudes

polling. Similarly, just 12% of those surveyed were aware of the RHI,

which is described in Box 3.2. 57

Box 3.2. The Renewable Heat Incentive (RHI)

Introduced in 2014, this scheme pays a fixed tariff to the property

owner per unit of renewable heat produced. A number of technologies

are eligible, and each receives a different tariff: heat pumps, biomass

boilers, and solar thermal. A government review concluded that the

availability of this financial incentive was the most important reason

why households chose to install renewable heat technologies. 58 The

funding for the scheme comes from general taxation.

The Government has recently released a consultation on the

future design of the RHI scheme. 59 The effect of the proposed

changes will be to focus available support on heat pumps, reduce

the tariff for biomass boilers, and remove all support for solar

55. National Grid, “Future energy scenarios: GB gas and electricity transmission”, http://fes.

nationalgrid.com/fes-document/ (2016), 46.

56. Nick Eyre and Pranab Baruah, “Uncertainties in future energy demand in UK residential

heating”, Energy Policy (2015), 641-653.

57. Department for Energy and Climate Change, “Department for Energy and Climate Change

public attitudes tracker – wave 15”, https://www.gov.uk/government/uploads/system/uploads/

attachment_data/file/474170/Wave_15_Summary_of_Key_Findings.pdf (2016), 7.

58. Department for Energy and Climate Change, “Census of owner-occupier applicants to

the domestic RHI: waves 1 to 12”, https://www.gov.uk/government/uploads/system/uploads/

attachment_data/file/496390/Domestic_census_waves_1-12.pdf (2016), 3.

59. Department for Energy and Climate Change, “The Renewable Heat Incentive: a reformed and

refocused scheme”, https://www.gov.uk/government/uploads/system/uploads/attachment_data/

file/505972/The_Renewable_Heat_Incentive_-_A_reformed_and_refocussed_scheme.pdf (2016).

44


Trends in home energy improvements

thermal panels. In the 2015 Spending Review, the budget for the

scheme was set to rise to £1.15 billion by 2020-21. 60 Although

the final spending figure is an increase from £850 million in the

2010 Spending Review, spending on the scheme this year will be

just £593 million. 61 The new tariffs for households have not been

confirmed yet, as the Government has not published its response

to the consultation.

While biomass boilers and solar thermal panels could play some role

in future heating systems, the renewable heat technology that will be

deployed at scale is likely to be heat pumps. This is especially true now

the Government has recalibrated the RHI to incentivise further uptake

of this technology.

The Committee on Climate Change found that just 2.5% of the UK’s

heating demand was met from low-carbon sources in 2014. 62 In order to

cost-effectively meet carbon budgets, they forecast that this figure must

rise to 8% by 2020, which would require a major increase in take-up over

the next few years. Greater deployment is therefore required to develop

the technology and its supply chains, and to bring costs down further.

The policies proposed in this report, as detailed in Chapter Five, will

facilitate retrofits of both energy efficiency measures and decentralised

renewables simultaneously.

Renewable electricity

The vast majority of our electricity, such as offshore wind farms,

combined cycle gas turbines (CCGTs), and nuclear power stations,

60. Her Majesty’s Treasury, “Spending Review and Autumn Statement 2015”, 52.

61. Her Majesty’s Treasury, “Spending Review 2010”, https://www.gov.uk/government/uploads/

system/uploads/attachment_data/file/203826/Spending_review_2010.pdf (2010), 24. Department

for Energy and Climate Change, “Consultation stage impact assessment: the Renewable Heat

Incentive: a reformed a refocused scheme” https://www.gov.uk/government/uploads/system/

uploads/attachment_data/file/505132/Consultation_Stage_Impact_Assessment_-_The_RHI_-

_a_reformed_and_refocussed_scheme.pdf (2016), 61.

62. Committee on Climate Change, “Meeting carbon budgets – 2016 progress report to Parliament”,

90.

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Better Homes

is not currently decentralised, but financed and operated by national

energy suppliers. However, the advent of cheap renewables has given

homeowners the option to install their own decentralised renewable

electricity technologies in their homes.

The principal generation technology for renewable electricity is solar

PV, which are discussed below. Battery storage, which can store electricity

generated at a time of low demand, and release it when required, is also

treated in this section. In addition, there are some uncommon forms

of decentralised renewable electricity generation: micro-wind turbines,

which use the wind to generate electricity, and micro-hydro, which use

energy from water to create electricity.

Solar PV

Solar PV essentially constitute the entirety of decentralised renewable

electricity generation in the UK. The panels are typically mounted on

the roof of a house, and turn the sun’s energy into electricity.

The cost of rooftop mounted solar in 2015 was estimated to be £175/

MWh. 63 In 2012, when Department for Energy and Climate Change

estimated what the cost of small-scale solar would be, for installations

commissioned in 2015, they thought it would be £269/MWh. 64

The consumer magazine Which? has found that the upfront cost of

installing a solar system for the consumer has fallen from an average of

£11,329 in 2011 to £6,750 in 2015. 65 This represents a fall in cost of just

over 40% in four years.

Battery storage

Electricity generated by a home’s solar PV, for which there is no

immediate demand, can be stored in chemicals inside a battery until

63. KPMG, “UK solar beyond subsidy: the transition”, http://www.r-e-a.net/upload/uk-solarbeyond-subsidy-the-transition.pdf

(2015), 12.

64. Department for Energy and Climate Change, “Electricity generation costs”, https://www.gov.uk/

government/uploads/system/uploads/attachment_data/file/65713/6883-electricity-generation-costs.

pdf (2012), 23.

65. Which?, “How to buy solar panels”, http://www.which.co.uk/energy/creating-an-energy-savinghome/guides/how-to-buy-solar-panels/solar-pv-prices-and-savings/

(2016)

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Trends in home energy improvements

demand exists. There are two main types of battery storage chemicals:

lithium-ion and lead acid batteries. Battery storage enables households

to consume more of the electricity that they produce themselves, and

helps to overcome the intermittency of renewable electricity generation.

Batteries have historically been very expensive and so unaffordable to

domestic customers. However, dramatic falls in the price of lithium-ion

mean that these batteries will soon be within the scope of household

finances. This cost reduction has been driven by significant deployment

of lithium-ion in electric vehicles and consumer electronics. 66 Between

1995 and 2011, the price of lithium-ion batteries fell from $3,185/kWh

to $320/kWh. 67 Costs are expected to continue to fall by around 12% per

annum until 2020, with slower falls thereafter. 68 In the US, the Tesla has

just launched its new domestic battery system, Powerwall, which costs

$3,500.’ 69

Trends in renewable electricity

Recent deployment of small-scale solar PV in the UK has been

impressive. There have been 836,152 solar panels installed on

households’ rooftops, representing a total installed capacity of 2.4 GW

(including retrospective accreditations). 70 At the start of 2010, there

were just 5,059 such installations with a total capacity of 10 MW. This

implies a huge increase in take-up of solar PV in the last six years.

Small-scale solar PV now represent around 3% of total UK electricity

generation capacity. 71

66. National Infrastructure Commission, “Smart power”, https://www.gov.uk/government/uploads/

system/uploads/attachment_data/file/505218/IC_Energy_Report_web.pdf (2016), 37.

67. KMPG, “Development of decentralised energy and storage systems in the UK”, http://www.re-a.net/upload/rea_storage_report-web_accessible.pdf

(2016), 18.

68. Ibid., 20.

69. Steven Morris, “Welsh home installs UK’s first Tesla Powerwall storage battery”, The Guardian,

February 5, 2016

70. These figures are based on solar photovoltaic deployment under the FIT scheme with a capacity

of 0-4 kWh; see Department for Energy and Climate Change, “Solar photovoltaics deployment”

https://www.gov.uk/government/statistics/solar-photovoltaics-deployment (2016).

71. Department for Energy and Climate Change, “Digest of United Kingdom Energy Statistics

2016”, https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/541005/

DUKES_2016_FINAL.pdf (2016), 115.

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Better Homes

Current levels of domestic battery storage are estimated to be very

low. 72 However, a number of storage technologies are thought to be on

the verge of commercialisation. For instance, the government recently

funded a £1.5 million demonstration project for Moixa’s domestic

energy storage system, Maslow, which was installed in 250 homes. 73

Box 3.3. The Feed-in Tariff (FIT)

First introduced in 2010, this scheme pays a fixed tariff per unit of

electricity generated from small-scale renewable sources. A tariff is

received both for generation of electricity, and for exporting surplus

energy to the grid that is not consumed by the household. Solar PV

are by far the most commonly supported technology, but small-scale

wind turbines, hydroelectric power, and combined heat and power

systems are also eligible. The cost of the scheme is added as a levy on

consumer energy bills, and is controlled by the government’s Levy

Control Framework (LCF), which monitors the cumulative impact of

government policies on household fuel costs.

In 2015, the Government announced changes to the FIT scheme to

reduce the costs to bill payers, including reduced tariffs and degression

rates. 74 This was in response to the greater than expected demand for

accreditations under the scheme, and the fact that the costs of solar

PV have plummeted. Support for new installations accredited under

the FIT has now been capped £100 million per year. As a result of the

reforms, the government forecasts that the total cost of the scheme

72. Department for Energy and Climate Change, “Towards a smart energy system”, https://www.

gov.uk/government/uploads/system/uploads/attachment_data/file/486362/Towards_a_smart_

energy_system.pdf (2015), 9.

73. Moixa Technology, “Department for Energy and Climate Change energy storage

demonstration”, http://www.meetmaslow.com/wp-content/uploads/2015/07/Moixa-Technology-

Department for Energy and Climate Change-Project-summary.pdf (2015).

74. Department for Energy and Climate Change, “Review of the Feed-in Tariff scheme”, https://

www.gov.uk/government/uploads/system/uploads/attachment_data/file/487300/FITs_Review_

Govt__response_Final.pdf (2015), 21.

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Trends in home energy improvements

will be £1.3 billion by the end of the Parliament. 75

Decentralised renewable electricity has enjoyed significant success

in recent years, with good deployment rates and rapidly falling costs of

solar PV. Now that there is a resilient supply chain and reduced upfront

costs for solar PV, the challenge is to deepen their market penetration

and encourage households to couple them with domestic battery

storage to optimise the power they produce.

Conclusion

Recent trends in home energy improvements vary between the

different energy efficiency measures and decentralised renewables.

The cheaper energy efficiency measures, that save the least energy,

have been deployed at scale, although there is still significant potential

for more installations. However, the market for the more expensive

measure, solid wall insulation, which has the greatest energy saving

potential, is not yet very developed.

Decentralised renewable heat has had very poor uptake in recent

years, whereas the main decentralised renewable electricity source

we have examined, solar PV, has performed very well. Dramatic cost

reduction in battery storage technologies suggests that renewable

electricity technology has great potential to grow. In all cases, however,

further development and deployment is required to meet the key policy

objectives. The next chapter will analyse why the Government’s flagship

policy to stimulate this market failed.

75. Department for Energy and Climate Change, “Impact assessment: government response

to consultation on a review of the Feed-in Tariff scheme”, https://www.gov.uk/government/

consultations/consultation-on-a-review-of-the-feed-in-tariff-scheme (2015), 25.

49


Chapter 4: Why the Green Deal failed

The previous chapter showed how progress in retrofitting energy

efficiency measures and decentralised renewables – crucial for making

households consume less and greener energy – has been slower

than required. This is in part down to the failure of policies like the

Green Deal that were intended to incentivise more home energy

improvements. This chapter will outline in detail the attributes of the

Green Deal, the reasons for failure, and the policy lessons that should

be learned.

What was the Green Deal?

The Green Deal was launched in 2013 to encourage able to pay

households to invest in home energy improvements. At the time of

the launch, the then Energy and Climate Change Minister, the Rt Hon

Greg Barker MP, described it as “the largest and most ambitious home

improvement programme our country has seen since the second world

war”. 76 He stated that his ambition for the policy was “to improve 14

million homes by 2020 and a further 12 million by 2030.”

Passed into law via the Energy Act 2011, 77 the Green Deal legislation

established a regulatory framework of advice, accreditation and

assurance for the installation of energy efficiency measures and

decentralised renewables in people’s homes. The legislation also set up

76. Greg Barker MP, Green Deal and Big Society event, 20 June 2011, https://www.gov.uk/

government/speeches/greg-barker-speech-green-deal-and-big-society-event.

77. UK Government, “Energy Act 2011”, http://www.legislation.gov.uk/ukpga/2011/16/pdfs/

ukpga_20110016_en.pdf (2011).

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Why the Green Deal failed

an innovative financial mechanism, with which households paid for

home energy improvements with a loan. The repayments for this loan

were made through energy bills.

The Energy Act 2011 amended consumer credit legislation, so that

special customer protections were added to the Green Deal loan.

This allowed these loans to be attached to properties, rather than to

the individual that took out the loan. These consumer protection

amendments enabled some individuals to qualify for Green Deal credit

who were unable to gain access to conventional sources of finance, such

as those with less good credit ratings. It has been estimated that Green

Deal finance was available to 83% of the population, whereas normal

consumer finance is available for roughly half the population. 78 The

‘Golden Rule’ was also established, which prevented loans being made

for which the repayments would be greater than the estimated savings

on energy bills.

Consumers interested in installing home energy improvements

could begin the Green Deal process by contacting an accredited

assessor to receive an assessment. A certified Green Deal assessor could

be an organisation or a sole trader, of which there were 308 and 4,035

respectively by the end of the scheme. 79 They can work independently,

contract with, or be part of a Green Deal provider organisation. The

assessor would visit a potential customer’s home, audit their home’s

energy use, and inform them which measures could be installed

under the Green Deal scheme and the potential energy savings of the

measures. This information was put into a Green Deal advice report.

Consumers had to pay upfront the cost of this Green Deal assessment,

which was on average £136. 80

78. UK Green Building Council, “Green Deal Finance”, http://www.ukgbc.org/sites/

default/files/140120%2520Green%2520Deal%2520Finance%2520Task%2520Group%2520-

%2520Report%2520FINAL.pdf (2014), 8.

79. Department for Energy and Climate Change, “Green Deal and Energy Company Obligation

(ECO): headline statistics (November 2015)”.

80. Department for Energy and Climate Change, “Research into the Green Deal and ECO

programme supply chain”, https://www.gov.uk/government/uploads/system/uploads/attachment_

data/file/421010/P10_GD_Supply_chain_research.pdf (2014), 53.

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If a customer chose to proceed with installing measures and wanted

to finance the work using the Green Deal, they then could shop around

for a Green Deal provider. There were 176 such providers by the end of

the scheme. 81 These were organisations that sell consumers a Green Deal

plan to provide the finance for the measures and arrange for an accredited

installer to retrofit them. The Green Deal loans were aggregated and

refinanced by the Green Deal Finance Company, funded and capitalised

jointly by government and a number of private sector companies.

Green Deal providers contracted accredited Green Deal installers to

carry out the improvements contained in the Green Deal plan. There

were 1,926 Green Deal installers by the end of the scheme. 82

Repayments for the Green Deal plan were added automatically to

consumers’ energy bills. Energy companies sent the repayments to the

Green Deal provider. The cost of the measures and of the finance were

borne entirely by the consumer, without government subsidy.

This step-by-step process for the Green Deal is shown in Figure 4.1.

The financial mechanism underpinning the Green Deal is referred

to as ‘pay as you save’ or ‘on-bill financing’. They both refer to the

fact that the loan that funds the energy saving measures is repaid via

energy bills. There are two principal advantages to this kind of financial

product. First, the loans are transferred on the sale of the property. This

ensures that whoever is saving money on their energy bills through the

installation of these measures also makes the loan repayments for the

measures. This feature overcomes the barrier of misaligned incentives,

where the person that pays for the measures does not accrue the energy

saving benefits. For example, in the owner occupier sector, some

householders may intend to move properties in five years’ time, and so

do not see any financial value in investing in energy saving measures

in their current property. Second, there is no upfront cost to Green

Deal loans. Home energy improvements, therefore, are not forced to

81. Department for Energy and Climate Change, “Green Deal and Energy Company Obligation

(ECO): headline statistics (November 2015)”.

82. Ibid.

52


Why the Green Deal failed

compete with other household renovations, such as new kitchens or

extensions.

Figure 4.1. Green Deal process

Arrange a Green Deal assessment

Receive a Green Deal advice Report

Source a Green Deal provider and agree Green Deal plan

Have measures installed by Green Deal installer

Make Green Deal loan repayments through energy bills

Before the Green Deal, home energy improvement schemes in the

UK had been funded primarily through supplier obligations. 83 Many

different versions of these schemes had been in place since 1994, each

with their own distinct energy and carbon saving targets and criteria

for meeting the targets. Suppliers attached the costs of delivering the

schemes to the bills of all their customers, not just those that benefited.

The Green Deal broke with that tradition. It was introduced in part to

help unlock more private investment in home energy improvements,

by removing financial barriers to individuals funding measures

themselves, and therefore to increase the overall number of homes that

83. Jan Rosenow and Nick Eyre, “The Green Deal and the Energy Company Obligation”,

Proceedings of the ICE – Energy (2013), 127-128.

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were improved. Department for Energy and Climate Change expected

that there would be between £1 billion and £1.3 billion of private

investment for the first three years of the scheme, and between £3.2

billion and £4.1 billion by 2022. 84

The Green Deal and the Energy Company Obligation

(ECO)

The Green Deal was designed to operate alongside the Energy Company

Obligation (ECO), a supplier obligation to save carbon emissions by

improving the energy efficiency of their customers’ homes. 85 Between

January 2013 and December 2015, ECO cost suppliers £3 billion. 86

This was estimated to add £50 to the average annual consumer bill. 87

The original ECO scheme was reformed in 2013, in response to

political pressure over rising energy bills. 88 These changes reduced the

cost of the scheme by allowing the carbon saving targets to be met

through the use of cheaper measures, such as cavity wall insulation.

The Government claimed these reforms saved an average of between

£30 and £35 per year on each household bill. 89 The Government has

committed to reforming ECO again to focus the scheme on the fuel

poor, as described in Box 1.2.

The version of the ECO that operated in conjunction with the Green

Deal had three components: to finance expensive energy efficiency

measures, such as solid wall insulation, that would not qualify for

84. Department for Energy and Climate Change, Final stage impact assessment for the Green

Deal and Energy Company Obligation, https://www.gov.uk/government/uploads/system/uploads/

attachment_data/file/42984/5533-final-stage-impact-assessment-for-the-green-deal-a.pdf (2012),

51.

85. National Audit Office, “Green Deal and Energy Company Obligation”, 22.

86. Ibid., 9.

87. Department for Energy and Climate Change, “Energy Company Obligation (ECO) delivery

costs”, https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/260907/

eco_delivery_costs.pdf (2013), 4.

88. Department for Energy and Climate Change, “The future of the Energy Company Obligation”,

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/342178/The_Future_

of_the_Energy_Company_Obligation_Government_Response.pdf (2014).

89. Department for Energy and Climate Change, “Government action to help hardworking people

with energy bills”, https://www.gov.uk/government/news/govt-action-to-help-hardworking-peoplewith-energy-bills

(2013).

54


Why the Green Deal failed

Green Deal finance under the Golden Rule; to install energy efficiency

measures in deprived rural areas; and to improve the energy efficiency

of households in fuel poverty. The Government claimed that the use

of some ECO funding for expensive energy efficiency measures in the

able to pay sector allowed the supply chain to develop, lowering the cost

over time and ultimately bringing them within the scope of the Green

Deal’s Golden Rule. 90 By mandating that households have a Green

Deal assessment prior to being offered energy efficiency improvements

under ECO, government also expected that households might fund

the cost of some measures using Green Deal finance (up to what was

permitted under the Golden Rule) and the remainder with ECO. This

was called ‘blended finance’.

Box 4.1: Comparing international home energy

improvement schemes

The Green Deal was an original scheme, having not been

implemented anywhere else in the world. However, governments in

other countries have similar schemes to the Green Deal to leverage

private investment into home energy improvements, but the

structure of these schemes was always different to the UK’s Green

Deal.

In Germany, able to pay households take out loans to fund energy

saving improvements in their homes, like under the Green Deal. 91

The principal distinction is that a government-owned investment

bank, the KfW, subsidises the interest rates of these loans. The

Government funds various schemes, at a total annual cost of €2

billion, for properties renovated to meet the ‘KfW Efficiency House’

90. Department for Energy and Climate Change, “What measures does the Green Deal cover”,

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/48088/1734-whatmeasures-does-the-green-deal-cover.pdf

(2011), 13.

91. For a systematic comparison of the German scheme with the Green Deal, see Jan Rosenow

et al., “Overcoming the upfront investment barrier – comparing the German CO2 building

rehabilitation programme and the British Green Deal”, Energy and Environment (2013), 83-103.

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standard. 92

In the Netherlands, the ‘Energiesprong’ initiative uses

government-backed loans to housing associations to fund deep

retrofits of multiple measures. Housing associations repay these

loans by collecting the energy savings from tenants’ bills. 93 The use

of energy savings to make the loan repayments is similar to the

pay as you save financial model of the Green Deal. Like the Green

Deal, there is an emphasis on the quality of the improvements. Each

retrofit must be completed within 10 days, improve the aesthetics of

the home, and reduce the property’s net energy consumption to zero.

In some US states, ‘property-assessed clean energy’ (PACE)

schemes provide loans from municipal governments to fund retrofits.

These loans therefore do not come from specialist organisations

like Green Deal providers. These loans are secured against the

homeowner’s property and are repaid through property taxes, rather

than through energy bills.

Green Deal vouchers schemes

The Government tried to increase demand for the Green Deal through

two incentive schemes. First, there was the Green Deal Cashback scheme,

operating between February 2013 and June 2014. The Government spent a

total of £16 million on this scheme, and it subsidised an additional 16,000

home improvement measures. 94 The scheme enabled homeowners with a

Green Deal assessment to claim cashback for each measure installed, up to

a total of two thirds of the amount you have to pay. 95

92. Caroline Kumezko, “Governing for demand management innovations in Germany: politics,

policy, and practice”, http://projects.exeter.ac.uk/igov/wp-content/uploads/2016/02/CK-Governingfor-Demand-Mangement-Innovations.pdf

(2016), 97.

93. Arthur Neslen, “Ikea kitchens help sell insulation to the Dutch – and the UK could be next”, The

Guardian, October 10, 2014

94. National Audit Office, “The Green Deal and the Energy Company Obligation”, 24.

95. Department for Energy and Climate Change, “The Green Deal: cashback for energy-saving

home improvers”, https://www.gov.uk/government/uploads/system/uploads/attachment_data/

file/294533/Cashback.pdf (2014).

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Why the Green Deal failed

Second, there was the Green Deal Home Improvement Fund. The

scheme helped people to install home energy improvements by giving

them money back on the cost of the measures. This scheme cost £154

million overall and was released in three separate rounds in June 2014,

December 2014, and March 2015. 96 In total, it subsidised an additional

27,000 measures. 97 All households that had had a Green Deal assessment

and a quote from an accredited Green Deal installer were eligible. Each

round of the scheme was configured differently, with different amounts

of cashback on offer and different eligibility criteria for items that could

be subsidised. It was so popular that the fund was quickly exhausted

whenever a new round was released. 98 The first round of funding was fully

allocated within six weeks. 99

The reality of the Green Deal

Between 2013 and 2015 when the Green Deal was in operation, 15,138

Green Deal plans were sold. In total, these plans financed 20,347 distinct

home energy improvements. This was substantially short of the aspiration

of 14 million homes improved by 2020 that the then Energy and Climate

Change Minister stated on launching the Green Deal.

96. Department for Energy and Climate Change, “£7600 to make your home more energy

efficient”, https://www.gov.uk/government/news/7600-to-make-your-home-more-energy-efficient

(2014); Department for Energy and Climate Change, Green Deal home improvement fund

details announced, https://www.gov.uk/government/news/green-deal-home-improvement-funddetails-announced

(2014); Department for Energy and Climate Change, £70 million for home

energy efficiency through the Green Deal Home Improvement Fund Release 3, https://www.gov.

uk/government/news/70-million-for-home-energy-efficiency-through-the-green-deal-homeimprovement-fund-release-3

(2015).

97. Department for Energy and Climate Change, “Domestic Green Deal and Energy Company

Obligation in Great Britain: headline report”, https://www.gov.uk/government/uploads/system/

uploads/attachment_data/file/477288/Headline_Release_-_GD___ECO_in_GB_19_Nov_Final.pdf

(2015).

98. Jan Rosenow and Nick Eyre, “Residential energy efficiency programmes in the UK: a roadmap

for recovery”, Proceedings of British Institute of Energy Economics (2014), 4-9.

99. Department for Energy and Climate Change, Green Deal Home Improvement Fund reaches

£50 million milestone in six weeks, https://www.gov.uk/government/news/green-deal-homeimprovement-fund-reaches-50-million-milestone-in-six-weeks

(2014).

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Chart 4.1: Home improvement measures installed using Green Deal

finance in percentage terms, 2013-2015

Condensing Boiler

15%

31%

Cavity wall insulation

Lighting

6%

Loft insulation

9%

29%

6%

2%

2%

Solar photovoltaic panels

Heating controls

Other insulation

Solid wall insulation

Source: DECC, “Green Deal and Energy Company Obligation (ECO): headline statistics”, (November 2015).

Chart 4.1 shows the different measures that were installed using

Green Deal finance during this period. These include the home energy

improvements described in detail in Chapter Three, as well as the

minor measures listed in Chapter One. The most popular measure

was a condensing gas boiler, an energy efficiency measure, with 6,393

installations. While this measure is an improvement on non-condensing

gas boilers, it is not consistent with deep decarbonisation, as it is still uses

carbon-emitting fossil fuels. The second most popular measure was solar

PV, a decentralised renewable technology, with 5,992 installations. The

third most popular measure was solid wall insulation, an energy efficiency

measure, with 3,026 installations. Fourth was heating controls, with

1,733 installations. Heating controls are a measure to encourage energy

saving behaviour. They include thermostats, timers, and programmers

to activate or switch off heating to more closely match demand. Fifth was

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Why the Green Deal failed

loft insulation, an energy efficiency measure, with 1,143 installations.

Sixth was ‘other insulation’ with 1,135 measures installed under the Green

Deal. This includes smaller energy efficiency measures such as draught

proofing, hot water cylinder insulation, and under floor insulation. The

two least popular measures were both energy efficiency measures: energy

efficient lighting with 383 installations and cavity wall insulation with 389

installations.

Beyond low take-up there were three other failures: failure to

leverage private investment into home energy improvements, poor

value for money, and failed interaction with the ECO.

First, the scheme failed to leverage private investment into home

energy improvement. The recent National Audit Office report finds that

just 1% of homes improved between 2013 and 2015 were funded using

Green Deal finance. Ninety-seven percent of improvements during this

period were delivered free to the consumer or on a discounted basis

either through the ECO or one of the temporary Green Deal subsidy

schemes, as outlined earlier in this chapter. 100

Second, for such a small impact, it was a very expensive policy. In total,

between 2013 and 2015, the government spent £240 million on the Green

Deal. This funding was spent on loans to set up the Green Deal Finance

Company, start-up costs for the regulatory framework, and support for

local government to promote the scheme in their areas. The average cost

to each individual taxpayer for one Green Deal plan was £17,000, and

this excludes the cost of the Green Deal Home Improvement Fund, the

principal voucher scheme for the Green Deal.

Third, as indicated earlier in this chapter, Ministers intended that ECO

and the Green Deal would work together to produce ‘blended finance’.

However, it is clear that this interaction was not successful. The House

of Commons Energy and Climate Change Committee found that there

was often an unhelpful competition between the two. 101 This was because

100. National Audit Office, Green Deal and Energy Company Obligation, 35.

101. House of Commons Energy and Climate Change Committee, “The Green Deal: watching brief

(part two)”, 18-19.

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many cheaper measures that the government intended to be financed

with the Green Deal could in fact be obtained for free under the ECO.

Indeed, as shown above, the overwhelming majority of home energy

improvements between 2013 and 2015 were financed by the ECO, or

another subsidy scheme. As homeowners are far more likely to prefer

free home energy improvements than those paid for by a loan, demand

for Green Deal finance was suppressed. Blending was also difficult

because ECO and Green Deal had different accreditation schemes. 102

Furthermore, the reforms to ECO in 2013, as described earlier in this

chapter, because of political pressure over rising energy bills, caused one

of its original objectives to be lost. To reduce the costs of the scheme

to energy suppliers, the Government allowed them to install cheaper

measures, such as cavity wall insulation and loft insulation. 103 This meant

that the more expensive measures, such as solid wall insulation, were not

targeted, and the supply chain did not develop as intended.

In July 2015, after just two and a half years in operation, the

Government announced that it would cease funding the Green Deal

Finance Company, in effect ending the Green Deal scheme. 104

As outlined earlier, this section has shown that there were four main

features of the Green Deal’s poor performance: low take-up, failure to

leverage private investment into home energy improvements, poor value

for money, and the failed interaction with the ECO. The next section will

analyse the possible reasons for the most important failure: low take-up.

Possible reasons for low take-up of the Green Deal

This section examines the reasons why there was low take-up of the

Green Deal. The policy’s central failure was that there was insufficient

demand for the product. There were four possible reasons for this: the

102. Annex, MIMA, 2.

103. Department for Energy and Climate Change, “The future of the Energy Company Obligation”,

23.

104. Department for Energy and Climate Change, “Domestic Green Deal and Energy Company

Obligation in Great Britain: headline report”, 6.

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Why the Green Deal failed

unattractive financial product, the poor communication of the scheme,

the poor consumer experience, and problems with the supply chain.

The unattractive financial product

The financial proposition to consumers underpinning the Green Deal

lacked broad appeal. Interest rates were typically between 7% and 10%

because of the government’s decision not to subsidise private lenders’

interest rates. This interest rate is competitive for unsecured loans,

like personal loans, but wasn’t attractive when compared to loans

secured against a home. 105 More attractive interest rates could be found

elsewhere to fund home energy improvements, for example, through

releasing equity from a property. 106 Many able to pay households are

also likely to have significant savings, which could be spent on home

energy improvements if the cost of finance was unappealing. The fact

that just 2.5% of Green Deal assessments resulted in Green Deal plans

suggests that some people may have financed the measures through

different means. 107

The high interest rate, combined with the often long repayment

period of up to 25 years, meant that the financing costs for Green

Deal plans were high. 108 Market research after the Green Deal’s launch

discovered a number of plans where the credit charge was greater than

the cost of installing the measures. For instance, on a £2,500 loan, over 25

years, with an APR of 8.5%, the total amount repaid would be £5,935.15,

with financing costs of £3,435.15. 109 Financing costs of around 58% of the

total loan was not a good deal.

Added to this was the highly restrictive Golden Rule, which prevented

105. Annex, Association for the Conservation of Energy, 2

106. House of Commons Energy and Climate Change Committee, “The Green Deal: watching brief

(part two)”, 22; Annex, Sustainable Energy Association, 1; Annex, WWF, 2..

107. Department for Energy and Climate Change, “Domestic Green Deal and Energy Company

Obligation in Great Britain: headline report”, 6.

108. UK Green Building Council, “Green Deal Finance”, 9-10.

109. Green Deal Finance Company, “Green Deal payment plans: the facts”, http://www.

tgdfc.org/assets/Pamphlet%20and%20Capital%20Ec%20Report/greendeal_leaflet_

publicationversion_18.10.13.pdf (2013), 5.

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the loan repayments from surpassing the estimated bill savings from

the measures. Although intended to protect households from increases

in their energy bills, it rendered the whole policy ineffective. It meant

that only smaller measures, like loft insulation or draught proofing,

could be financed solely using Green Deal finance. These were not

inspiring options for households deciding whether to undergo the timeconsuming

Green Deal process. If the total cost of the measures and

credit exceeded the amount that could be borrowed under the Golden

Rule, households had to pay a lump sum upfront to access Green Deal

finance.

The mean size of Green Deal loans was £3,571, which is insufficient to

on its own fund solid wall insulation, double glazing, or a heat pump. 110

Moreover, it is no way near enough financing to allow a deep retrofit of

solar PV, solid wall insulation, double glazing, and an air-source heat

pump, which would together cost £26,900. 111 The Green Deal aimed to

remove the upfront cost of home energy improvements to consumers,

and yet the design of the Green Deal effectively necessitated an initial

cash payment to unlock the finance package for deep retrofits. 112

Some single measures were often too expensive to meet the Golden

Rule requirement. For example, a typical installation of solid wall

insulation might cost a household £9,000. 113 In an average semi-detached

household, Department for Energy and Climate Change estimated

that the measure would save £232 per year on fuel bills. The maximum

annual repayments, therefore, under the Golden Rule, could not exceed

£232. Over a 25-year loan (the maximum repayment period for Green

110. This assumes a £50 million loan book across 14,000 Green Deal plans. See National Audit

Office, “Green Deal and Energy Company Obligation”.

111. These are Department for Energy and Climate Change’s central estimates for the cost of

each home improvement measure: solar PV (£6,500), solid wall insulation (£9,000), double

glazing (£9,000), air-source heat pump (£4,900). See Department for Energy and Climate Change,

“Illustrative savings for Green Deal improvement measures”.

112. Association for the Conservation of Energy and Bioregional, “Retrofitting the Green Deal”,

http://www.bioregional.com/wp-content/uploads/2014/10/BioRegional-Retrofitting-the-Green-

Deal-Report1.pdf (2014), 9.

113. All estimated figures in this example are from Department for Energy and Climate Change,

“Illustrative savings for Green Deal improvement measures”, 19.

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Why the Green Deal failed

Deal loans), £5,800 could be borrowed, including financing costs. This

comes quite some way short of the £9,000 required to install solid wall

insulation, before financing costs are even taken into account.

The combination of the high cost of finance and the restrictive Golden

Rule made the Green Deal a very unattractive financial proposition.

Moreover, the inclusion of the Golden Rule in the design of the scheme

prevented the deep retrofits required to unlock the private and public

benefits described in Chapter One.

The poor communication of the scheme

In 2011, before the launch of the scheme, Department for Energy and

Climate Change commissioned Ipsos MORI to conduct consumer

research through focus groups for the Green Deal. This research found

that the most effective message to convince people to engage in the

Green Deal was around having a warmer home. They also found that the

financial proposition was actually a barrier for many people in getting

involved in the scheme, suggesting it was a poor aspect to emphasise in

the communication strategy. Participants in the study also highlighted

concerns about the small potential for energy savings and the long

payback period, which have just been illustrated above. 114

Yet despite this evidence, the Green Deal was marketed to consumers

primarily as a way to save money on energy bills. The government

communication campaign launched with two posters, both of which

focused on bill savings: “Hate rising energy costs? Green Deal with

it” and “Boiler burning money? Green Deal with it”. 115 But this almost

exclusive focus on the financial proposition of the Green Deal was too

narrow. The marketing for the Green Deal was like trying to sell a car to

someone by emphasising the merits of the finance package, without first

convincing someone they want or need a car.

114. Department for Energy and Climate Change, “Consumer needs and wants for the Green Deal”,

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/43018/3505-greendeal-consumer-needs-wants.pdf

(2011), 16-21.

115. Department for Energy and Climate Change, “Hate rising energy costs? Green Deal with it”,

https://www.gov.uk/government/news/hate-rising-energy-costs-green-deal-with-it (2013).

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The poor consumer experience

The Green Deal failed to take into account homeowners’ natural

reluctance to having their properties and lives disrupted. Home energy

improvement measures are three times as common when carried out

as part of other amenity renovations, and only one in ten people have

considered installing solely energy-related measures. 116 Consumers do

not like taking a piecemeal approach to renovations, and yet that is what

the Green Deal required. As shown above, the Golden Rule constraint

limited the size of the retrofit that could be installed.

The Green Deal also failed to take advantage of moments when

homeowners are likely to carry out other domestic improvements,

such as the point of sale, by failing to deploy regulations and financial

incentives to drive Green Deal demand at these points. The final chapter

will examine how smarter regulations could enable these trigger points

to be better utilised.

From being interested in improving the energy consumption of

their property, a consumer would have to go through a complicated

multi-stage process, interacting with multiple different actors, as shown

in Figure 4.1. 117 Not only does this make the Green Deal process

unappealing and a hassle for consumers, it also gives interested parties

multiple opportunities to drop out mid-way through. 118 The application

form for a Green Deal plan was typically 20 pages, compared to the

standard five pages for a conventional bank loan. 119 Green Deal plans

could only be sold by accredited providers in a customer’s home. Most

people will buy a financial product online or over the phone, and yet this

was explicitly prohibited under the scheme’s rules. 120

116. UK Energy Research Council, “Understanding homeowners’ renovation decisions: findings of

the VERD project”, http://tyndall.ac.uk/sites/default/files/verd_summary_report_oct13.pdf (2013),

8.

117. Annex, Good Energy, 2.

118. Annex, British Gas, 2.

119. House of Commons Energy and Climate Change Committee, “The Green Deal: watching brief

(part 2)”, 20

120. House of Commons Public Account Committee, “Oral evidence: Household energy efficiency

measures”, Q53.

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Why the Green Deal failed

The number of Green Deal assessments from the scheme’s launch until

the end of 2015 was 614,383, whereas there were just 15,138 Green Deal

plans taken out. This shows that between the first and final stage of the

Green Deal process, 97.5% of the original number of customers left the

process. Part of the effect is that measures were financed through better

alternatives, such as ECO or the Green Deal Home Improvement Fund;

but part of the effect could also be that the process lost customers because

of the poor consumer experience.

The problems with the supply chain

When the Government ended funding for the Green Deal in July 2015,

it commissioned Dr Peter Bonfield OBE, Chief Executive of BRE, an

advisory organisation on the built environment, to examine the industry

standards and consumer protection of home energy improvement

schemes. 121 This reflected the fact that there had been serious concerns

about the quality of the measures being installed and the framework for

ensuring reliable installations. It was likely that a loss of confidence in the

Green Deal brand’s quality assurance became a barrier to take-up.

Department for Energy and Climate Change’s consumer research

showed that the guarantee of high-quality that came with Green Deal

accreditation was one of the most appealing aspects of the scheme. 122

Yet there were reports that some consumers encountered rogue traders

among installers. 123 Around 11% of Green Deal assessors and 14% of

Green Deal installers were suspended from the scheme because of

poor workmanship. 124 Moreover, when work was poorly carried out,

the redress frameworks for Green Deal providers were patchy and

121. Department for Energy and Climate Change, “Bonfield review terms of reference”, https://

www.gov.uk/government/uploads/system/uploads/attachment_data/file/465119/150721_

Independent_Review_-_short_ToR_-_REV.pdf (2015).

122. Department for Energy and Climate Change, “Consumer needs and wants for the Green Deal”,

16.

123. House of Commons Energy and Climate Change Committee, “The Green Deal: watching brief

(part 2)”, 15.

124. Jan Rosenow and Nick Eyre, “A post mortem of the Green Deal: Austerity, energy efficiency,

and failure in British energy policy”, Energy Research and Social Science (2016), 141-144.

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inconsistent, with different ombudsmen covering different stages of the

process. 125

Box 4.2. Problems with the Green Deal supply chain

development

In 2014, Department for Energy and Climate Change commissioned

research into why businesses working in the energy efficiency and

decentralised renewable supply chain did not choose to get involved

in the Green Deal supply chain. 126 The report identified a number of

barriers to entry.

First, the cost of registering to become accredited was £10,000,

which was too high for many small businesses and sole tradespeople,

particularly given the lack of demand for the Green Deal scheme. 127

Second, the accreditation schemes were overly complex and

bureaucratic. They were time-consuming to comply with, and were

seen as often overlapping with other accreditation schemes without

adding additional value.

Third, the political uncertainty over the longevity of the Green

Deal scheme meant that suppliers did not have confidence to

invest the time in the training and accreditation process. The

short-term nature of the financial incentives, such as the Green

Deal Home Improvement Fund, described earlier in this chapter,

caused inconsistent patterns of consumer demand. These boombust

cycles in the volume of available business in turn meant that

the supply chain for home energy improvements did not have

the confidence to invest and grow, and so was unable to develop

sustainably. 128

125. Annex, Ombudsman Services, 1.

126. Department for Energy and Climate Change, “Research into businesses that were not certified

Green Deal suppliers”, https://www.gov.uk/government/uploads/system/uploads/attachment_data/

file/388068/Green_Deal_Supply_chain_non-participant_research_FINAL_PUBLISHED.pdf (2014),

20-21.

127. Annex, Energy and Utilities Alliance, 1.

128. Annex, MIMA, 1.

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Why the Green Deal failed

These features of the scheme favoured large energy companies

over local tradesmen, who are better at managing cost, bureaucracy

and risk. This meant that the expertise, local knowledge, trust, and

customer base of small building companies were under-utilised in

the Green Deal scheme.

In short, the Green Deal failed to properly drive consumer demand,

which led to low levels of take-up of the scheme. The combination of

incentives, marketing and regulatory compulsion was insufficient to

increase uptake of home energy improvements. Those consumers that

were interested in the scheme did not have a positive, straightforward

journey. This in turn led to an underdeveloped supply chain that was

unappealing to potential new entrants.

This chapter has shown how the Green Deal failed to meet the

high expectations set by Ministers. Instead of the 14 million homes

improved by 2020 under the scheme, there had been just over 15,000

Green Deal plans sold when the scheme closed in July 2015. Aspects

of the policy, such as the pay as you save mechanism, were sound. But

others, such as the Golden Rule and the complexity of the customer

journey, undermined the scheme. The next chapter will consider what

modifications to the Green Deal policy the Government can make to

overcome some of these problems.

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Chapter 5: Policies for a new home energy

improvement scheme

The previous chapter showed how progress in retrofitting energy

efficiency measures and decentralised renewables – crucial for making

households consume less and greener energy – has been slower

than required. This is in part down to the failure of policies like the

Green Deal that were intended to incentivise more home energy

improvements. This chapter will outline in detail the attributes of the

Green Deal, the reasons for failure, and the policy lessons that should

be learned.

Policy approach

There is no single solution to stimulating the home energy improvement

market. It will require a suite of policies to increase up-take and address

the main reasons for failure, which were identified in Chapter Four:

an unattractive finance mechanism, the poor communication of the

scheme, the poor consumer journey, and issues around the quality of

the supply chain.

There are four main types of policies that we propose: improving

the communication of the scheme, making the financial package more

attractive, strengthening regulation for customers, and bolstering the

supply chain.

Ultimately, a new scheme should increase take-up of deep retrofits

of home energy improvements to lead to a significant reduction in

carbon emission from homes and greater energy security. However,

when formulating policies, we applied two particular key tests that

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Policies for a new home energy improvement scheme

had to be met:

• zRecognising fiscal realism. The Government is committed to

reducing the budget deficit, and so cannot implement expensive

new policies. We do not shy away from proposing a policy that

carries a cost. However, we are conscious that there is a limit to the

amount of money that can be spent in this policy area.

• zStimulating the market. The previous Green Deal scheme failed

to drive consumer demand, which in turn damaged the confidence

of the supply chain. New policies must be more successful at

expanding this market, enabling small businesses to flourish,

leveraging private investment, and ultimately improving the

productivity of the economy.

Improving the communication of the scheme

Recommendation one: create a new home improvement

scheme

Public trust in the Green Deal brand has been undermined due to its

poor performance. Its successor will require new policies and should

be rebranded. The new package we propose should be framed as a

home improvement scheme, rather than as the ‘Green Deal’. Schemes

that market themselves as ‘green’ limit their appeal. 129 To become part

of the mainstream consumer market, energy efficiency measures

and decentralised renewables need to be seen as another domestic

renovation, rather than simply an environmental measure.

There are other reasons why the rebranding from Green Deal to a

home improvement scheme is justified. While they often do not create

an aesthetically pleasing product like other home refurbishments

129. Department for Energy and Climate Change consumer research found that just 17% of

respondents would consider installing home energy improvements to reduce carbon emissions. See

Department for Energy and Climate Change, “Green Deal household tracker survey: wave 4 report”,

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/320364/gd_tracker_

w4_report.pdf (2014), 25.

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– you can’t ‘see’ cavity wall insulation in the same way that you can

see an attractive new kitchen – there are tangible improvements to

the householders’ quality of life, such as increased warmth, greater

comfort, and better health outcomes. 130 In the case of solid wall

insulation, home energy improvements can even make the building’s

exterior more attractive. Similarly, like with other home improvements,

energy retrofits add value to people’s properties. 131

Box 5.1. Expanding the eligible home energy improvement measures

The list of eligible home energy improvement measures for the

scheme should also be expanded, to create a more inspiring set of

home improvement options to appeal to consumers. All the energy

efficiency measures and decentralised renewables we described

in Chapter Three will be included. But also, battery storage, a

decentralised renewable electricity technology, which is crucial for

overcoming the intermittency of decentralised renewables and for

minimising households’ energy costs, should be included. Smart

appliances, such as smart fridges or smart washing machines, which

are connected to the home’s smart meter and encourage energy saving

behaviour, should also be eligible under the scheme.

The consumer journey for the Green Deal was complex and involved

multiple interactions with different agents, as demonstrated in Chapter

Four. For this reason, a regional network of ‘one stop shops’, with an

accessible digital interface, should be created. This would provide

advice to consumers on how to navigate the new scheme, from

receiving an assessment to having the home energy improvements

installed. It would also provide a register of assessors and installers.

130. House of Commons Energy and Climate Change Committee, “Home energy efficiency

and demand reduction”, http://www.publications.parliament.uk/pa/cm201516/cmselect/

cmenergy/552/552.pdf (2016), 28-30.

131. Department for Energy and Climate Change, “An investigation of the effect of EPC ratings on

house prices”.

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Policies for a new home energy improvement scheme

This body could be part-funded by the government, using the money

that it spent on the Green Deal Communities scheme, which funded

local authorities to promote the Green Deal in their areas. It could also

be part-funded by the registration fees of assessors and installers, as the

Green Deal Oversight and Regulation Body was under the old scheme.

Therefore, our first recommendation is that the new package offered

by government should be framed as a home improvement scheme. It

should be communicated to consumers as a policy to make properties

warmer, healthier, and more valuable, rather than as a ‘green measure’.

It should include energy efficiency measures and decentralised

renewables, as well as new measures such as battery storage and smart

appliances. It should be communicated and explained to consumers

through the establishment of a new regional network of one stop shops.

The details of this new scheme, and how they differ from the Green

Deal, are described below.

Making the finance package more attractive

The pay as you save financing mechanism, as described in Chapter

Four, that underpinned the Green Deal should be retained in the new

Help to Improve scheme. 132 It was originally established to remove the

upfront cost of home energy improvements, so that they would be

more affordable and ensure they did not directly compete with other

household expenditure priorities. The financing mechanism was also

designed not to affect an individual’s credit rating, as the loan was

attached to the energy bill of the property. Consequently, it was not a

personal loan or a mortgage. This meant that Green Deal financing did

not affect the ability of households to borrow to pay for new kitchens,

extensions, or other improvements.

However, the government made this very attractive off-balance sheet

financing proposition fundamentally very unappealing. The cost of

132. This was a key theme of the evidence we reviewed. See Annexe, Jan Rosenow (Centre for

Innovation and Demand Reduction), 1; Annexe, Energy and Utilities Alliance, 2; Annexe, UK

Association for the Conservation of Energy, 3; Annexe, Knauf, 2; Annexe, Energy Saving Trust, 1.

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finance for the Green Deal ended up being much higher than it should

have been – certainly higher than mortgage rates of interest and even

higher than many personal loans or credit cards. This was a result of

the relatively high borrowing costs of private sector lenders, and the

government’s decision not to subsidise the interest rate.

The available evidence suggests that creating mass demand for

home energy improvements will be impossible without some form of

government support, such as subsiding loans or tax incentives. 133 As

detailed in Box 4.1, home energy improvement schemes in comparable

countries, such as France and Germany, rely on taxpayer funding to

create the sufficient demand to meet government policy objectives. 134

In this section, we propose four improvements to the financing

mechanism that address these shortfalls, that will help to unleash the

pay as you save model.

Recommendation two: introduce ‘Help to Improve’ loans

The Government should offer Help to Improve loans, which would be

a sister policy to ‘Help to Buy’. They should underwrite the loans using

funding from the UK Guarantees scheme for infrastructure (see Box

5.2 for further details). 135 All households that have had an assessment

should be eligible for this scheme.

The government should raise the capital for the Help to Improve

loans from the international bond markets using its historically low

borrowing costs. 136 By underwriting households’ home improvement

loans, the government would pass on this cheap cost of capital to

households, whose loans would now have cheaper interest rates than

were offered under the old Green Deal.

133. Annexe, Jan Rosenow (Centre for Innovation and Demand Reduction), 2.

134. Ricardo AEA, “A comparative review of housing energy efficiency interventions”, http://www.

climatexchange.org.uk/files/8814/4594/0740/final_report_261015.pdf (2014), 16-17.

135. A version of this policy was recommended in Jan Rosenow and Richard Sagar, “After the

Green Deal: empowering people and places to improve their homes”, http://www.respublica.org.

uk/wp-content/uploads/2015/09/After-the-Green-Deal.pdf (2015), 8; Annexe, UK Green Building

Council, 3; MIMA, 3.

136. Elaine Moore, “UK 10-year gilt yield falls below 1%”, Financial Times, June 27, 2016

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Policies for a new home energy improvement scheme

Box 5.2. The UK Guarantees scheme for infrastructure

The UK Guarantees scheme for infrastructure was launched in 2012 to

provide government-backed guarantees to infrastructure projects. 137

The aim of the policy was to speed up infrastructure investment and

enable private investors to get access to reliable financing. Up to £40

billion in aggregate (excluding interest) has been offered so far under

the scheme. At the end of 2014, seven projects had been extended £1.7

billion worth of guarantees, and there remained 39 projects (including

Hinkley Point C nuclear power station) worth £24 billion that had

successfully prequalified for the scheme.

The scheme is currently scheduled to close in December 2016.

To comply with EU state aid rules, the scheme had to charge

investors a market-oriented fee so that the guarantee did not count

as a subsidy. However, following the recent vote to leave the EU,

this requirement can now be lifted, enabling the government to

pass on its low borrowing cost to private households to boost

productivity investments.

Home energy improvements are a major investment in UK

infrastructure, which boost productivity and long-term growth. As

the government is currently examining options for new infrastructure

spending, this policy would provide a quick fiscal stimulus to the

economy, as there is already a significant home energy improvement

supply chain in place.

Current home energy improvements schemes in comparable

countries such as France and Germany provide cheap financing for

households. For example, as shown in Box 4.1 earlier, the German

government spends over €2 billion annually to lower the interest rate

for retrofit loans to 1%. However, because of Germany’s low borrowing

costs and the tax revenue the additional economic activity from home

137. National Audit Office, “UK Guarantees scheme for infrastructure”, https://www.nao.org.uk/

wp-content/uploads/2015/01/UK-Guarantees-scheme-for-infrastructure.pdf (2015).

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improvements generates, the policy actually raises money for the

German exchequer. It has been found that for every €1 of public money

spent on the KfW programme, €4 is earned by the Treasury in taxes

and reduced welfare spending. 138

It is likely that the UK will see a net fiscal benefit from the proposed

Help to Improve loans. But to ensure government costs were controlled,

several measures could be introduced. The annual budget for the Help

to Improve scheme could be capped, the maximum size of each home

improvement loan could be limited, or the number of loans supported

by government annually could be controlled.

Since the Green Deal Finance Company is in the process of being

sold off, high street banks could provide the loans for the Help to

Improve scheme. There is good evidence that the private sector would

perform this function. Before the government’s decision to establish

and part-subsidise the Green Deal Finance Company, a number of

private-sector companies were interested in financing the Green Deal

scheme. 139 High-street lenders provide retrofit loans in France and

Germany, and they are better placed to promote the scheme to their

existing retail customers. This would also help to frame the Help to

Improve scheme as a mainstream proposition, and stimulate a market

in home improvement schemes.

Recommendation three: introduce a new ‘Help to Improve ISA’

The government should introduce a ‘Help to Improve ISA’, which

would be a sister policy to the Help to Buy ISA introduced in the

2015 Budget. Under the Help to Buy ISA, first time buyers that

choose to save through a Help to Buy ISA receive a bonus worth 25%

of the amount saved when they buy their first home. 140 There is a

138. Energy Bill Revolution, “A housing stock fit for the future: making home energy efficiency a

national infrastructure priority”, http://www.energybillrevolution.org/wp-content/uploads/2014/08/

A-housing-stock-fit-for-the-future-Making-home-energy-efficiency-a-national-infrastructurepriority-3.pdf

(2014), 4.

139. Marksman Consulting, 1.

140. Her Majesty’s Treasury, “Help to Buy ISA: scheme outline”, https://www.gov.uk/government/

uploads/system/uploads/attachment_data/file/413899/Help_to_Buy_ISA_Guidance.pdf (2015), 2.

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Policies for a new home energy improvement scheme

maximum government contribution of £3,000 on £12,000 of savings.

An equivalent scheme should be established for Help to Improve.

This could help increase savings rates, and increase the amount of

private capital available to finance the upfront costs of home energy

improvements or to reduce the loan repayments, further stimulating

the market. Demand for this scheme will be limited by low savings

rates and the existence of competing government-supported savings

schemes. This means the scheme will be fiscally realistic.

Recommendation four: scrap the ‘Golden Rule’ on home

improvement loans

The Golden Rule constrained the amount of money that could be

borrowed under the Green Deal, as it mandated that loan repayments

could not exceed estimated energy savings of the measures. This led

to the average (mean) Green Deal loan being just £3,500, as shown in

Chapter Four. This was insufficient to finance the more expensive home

improvement measures, such as solid wall insulation, without paying

an upfront lump sum.

The Golden Rule requirement should be scrapped. Removing

the Golden Rule would enable deep retrofits to be financed under

the new Help to Improve scheme, rather than just cheap individual

measures. Without the Golden Rule, tens of thousands of pounds

could be borrowed, allowing a powerful combination of decentralised

renewables and energy efficiency measures, as well as smart appliances

and battery storage to be installed and entirely financed by a new home

improvement loan. This will stimulate the market by enabling a greater

range and number of home energy improvements than were installed

under the Green Deal.

Removing the Golden Rule limit would also enable other financial

constraints in the scheme to be liberalised. To keep monthly repayments

small enough to meet the Golden Rule, the payback period of the Green

Deal loans could be up to 25 years. This would not be necessary under

the new home improvement scheme, as loans could be amortised over

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Better Homes

shorter or longer periods, depending on the personal preferences of the

household.

The removal of the Golden Rule will entail some loss of consumer

protection, as the government will no longer impose limits on the

amount of money that a consumer can borrow and be made to repay.

However, there will still be a credit check before a Green Deal loan

can be taken out, meaning the risk of ‘sub-prime’ loans is small.

The evidence from Germany, where there is no such Golden Rule

constraint, also suggests this consumer protection is unnecessary. 141

While it is right for households to be given all the information about

future repayments, the government shouldn’t be paternalistic about

how much individuals can borrow from the private sector, as it did

with the Green Deal. The new home improvement scheme will enable

individuals to take personal responsibility for their own financial

decisions. Furthermore, as it is individuals’ own money that they will

be repaying, this will act as a natural limit on the amount borrowed,

thereby making this policy fiscally realistic.

Recommendation five: integrate revenue to households from

the Renewable Heat Incentive (RHI) and the Feed in Tariff (FIT)

into the new home improvement scheme

The existing subsidy regimes for decentralised renewables, which

we detailed in Chapter Four, should be folded into the new home

improvement scheme. The Government expects to spend £1.3

billion annually on FIT and £1.2 billion on the Renewable Heat

Incentive (RHI) by the end of the Parliament, including for historic

accreditations. The revenue households receive from these schemes

should instead be deducted from their home improvement loan

repayments, mitigating in part their higher energy bills. 142 This change

would also help to streamline the incentive structure, making the home

energy improvement market easier for consumers to understand,

141. Jan Rosenow et al, “Overcoming the upfront investment barrier”, 94.

142. Annex, Good Energy, 4; Energy Saving Trust, 5.

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Policies for a new home energy improvement scheme

and to link together energy efficiency measures and decentralised

renewables. There is no added cost of this policy because it is taking

existing government expenditure.

As subsidies via the RHI and FITs are gradually phased out

as renewables become cost competitive without subsidy, home

improvement loans could become the primary means for government

to support their deployment in the domestic sector. Even if renewables

are cost competitive without subsidy – as they now are in many

circumstances – households may still have trouble finding the upfront

capital to install them. The home improvement loans can address this

problem.

Strengthening regulation for customers

Regulation is another important component of creating the demand

for mass uptake of home energy improvements. Regulation should be

used carefully, but, in the past, it has proven to be effective at changing

consumer behaviour around energy consumption, and reducing

carbon emissions. For instance, in 2005 regulations were introduced

that mandated all new and replacement gas boilers to be more

efficient condensing boilers. This has seen the share of condensing

boilers rise from 2% in 2001 to 53% in 2014. 143 Similarly, the Coalition

Government introduced regulation about the energy performance of

properties rented out by private-sector landlords. These will prevent

properties with an Energy Performance Certificate (EPC) rating below

E from being rented out from 2018. 144

Recommendation six: introduce minimum energy performance

standards for properties at the point of sale and when other

renovations on the property are carried out

Blanket regulation imposing minimum energy performance standards

143. Department for Communities and Local Government, “English housing survey: headline

report”, 37.

144. Annex, MIMA, 4.

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Better Homes

across the entire housing stock is not currently politically feasible, as

it would be an unacceptable level of intrusion into private property.

Instead, regulation should be targeted at specific ‘trigger points’, when

households are more likely to consider home energy renovations.

Consumer research has found that one in four renovations are caused

by trigger points, such as boiler failure. 145

Two potential trigger points for the able to pay sector are when a

house is being sold, and when other building work is being done to

the property. 146 Regulation at these two trigger points would drive

consumer demand for the new home improvement scheme. There

should of course be a long lead-in time, so that homeowners and the

supply chain can prepare and minimise their costs.

First, prior to the sale of a property, homeowners often consider doing

renovations to increase the value of their home to potential buyers.

At this point, they are required by law to have their home’s energy

performance formally assessed by an Energy Performance Certificate

(EPC) and provide it to the next owner prior to the completion of

the sale. EPCs are awarded to property owners by accredited energy

assessors, ranging from A (highest) and G (lowest). 147 The rating is based

on a number of elements, including all the home energy improvements

discussed in this report: the heating system used, wall insulation, levels

of roof insulation, and amount and type of glazing. Regulation could be

used to mandate a minimum rating on the EPC for homes that are sold.

The minimum EPC rating should be gradually increased over time

in order to meet the UK’s carbon budgets. The government needs to

carefully consider which buildings these regulations will apply to, such

145. UK Energy Research Council, “Understanding homeowners’ renovation decisions”, 5.

146. Westminster Sustainable Business Forum, “Warmer and greener: a guide to the future of

domestic energy efficiency policy”, http://www.policyconnect.org.uk/wsbf/sites/site_wsbf/files/

report/761/fieldreportdownload/warmergreenerreport.pdf (2016), 28-29; Bioregional, “Retrofitting

the Green Deal”, 15.

147. Department for Communities and Local Government, “Improving the energy efficiency of our

buildings: A guide to energy performance certificates for the marketing, sale and let of dwellings”,

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/307556/Improving_

the_energy_efficiency_of_our_buildings_-_guide_for_the_marketing__sale_and_let_of_dwellings.

pdf (2014).

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Policies for a new home energy improvement scheme

as buildings with multiple occupants or listed buildings.

Second, home energy improvements could be mandated in building

regulations when any home improvement works are undertaken on a

property. People are three times more likely to consider home energy

improvements as part of a package of other renovations rather than

on their own. 148 Therefore, the Government could regulate so that any

home improvement work carried out on a property must also improve

the property’s overall energy performance levels. To minimise the costs

of the measures for individuals, the building regulations could set a

limit on the cost of the home energy improvements that would have

to be introduced. For example, they could mandate that the cost of the

home energy improvements cannot exceed a certain percentage of the

overall cost of the building works. This regulation would be enforced

in the same way that the building code, the regulations that govern

building works, is currently enforced.

While the proposed regulations do add costs to households, the new

home improvement scheme we have proposed in this report means that

there would be no upfront cost for the home energy improvements,

and repayments would be made in instalments on consumers’ energy

bills. The government would have to think carefully about the exact

minimum energy performance that would apply at the point of sale

and when building work is undertaken. The exact rating would have

to be demanding enough to achieve the reductions in energy use to

meet carbon emissions targets and guarantee energy security, but not

too burdensome that it would be financially punitive for those on more

modest incomes.

Bolstering the supply chain

The last chapter analysed the problems with the supply chain that

affected consumer demand and limited uptake of home energy

improvements. These included: a complex accreditation scheme that

148. UK Energy Research Council, “Understanding homeowners’ renovation decisions”, 8.

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Better Homes

was a barrier to new entrants in the supply chain, a complex consumer

journey, and poor quality installations. In this section, we propose two

new policies to address these shortfalls.

Recommendation seven: offer free training and reduced

registration fees for small businesses and local tradespeople

More local tradespeople and small and medium enterprises (SMEs)

should be encouraged to join the supply chain for home energy

improvements. While large energy companies have a role to play in

the home energy improvement market, particularly by delivering

the measures mandated under the ECO scheme that was outlined in

Chapter Four, they seem to be less trusted by consumers, and so may

not be the right people to front this home improvement programme. 149

Moreover, tradespeople are best placed to market energy efficiency

measures and decentralised renewables to their localised networks

of customers, and bring retrofits into the mainstream of home

improvement. 150

Tradespeople can also recommend home energy improvements

to their customers alongside other renovations, maximising the

opportunities of trigger points. Consumer research has found that 85%

of households considering general renovations will stretch their budget

to include energy efficiency measures. 151 This policy complements the

previous recommendation to introduce energy performance regulation

when general renovations are being undertaken.

To become an accredited Green Deal installer, installers had to pay

£10,000, as shown in Chapter Four. This was a barrier for SMEs entering

the market. 152 Similarly, local tradespeople that are not specialists in

home energy improvements require training to acquire the requisite

149. Annex, Durham Energy Institute, 4.

150. Catrin Maby and Alice Owen, “Installer power: the key to unlocking low-carbon retrofit in

private housing”, http://ukace.org/wp-content/uploads/2015/12/Installer-Power-report-2015.pdf

(2015), 11-13.

151. Energy Saving Trust, “Trigger points: a convenient truth”, http://www.energysavingtrust.org.uk/

sites/default/files/reports/EST_Trigger_Points_report.pdf (2015), 12.

152. Annex, Energy and Utilities Alliance, 1.

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Policies for a new home energy improvement scheme

skills to install these measures. Both the time away from other renovation

work and the upfront cost to attend these training sessions can be another

barrier to SMEs becoming involved. Therefore, we are recommending

that the Government subsidise registration fees to become accredited for

local tradespeople and SMEs, and provide free training sessions. This will

help encourage more of this important part of the supply chain to sign

up to provide the new home improvement scheme, giving a supply-side

stimulus to the market, which is one of our principal policy aims.

Recommendation eight: introduce a new, single accreditation

scheme for all installers of home energy improvements

The Bonfield Review, set up by the Government after the decision to

end funding for the Green Deal, is expected to make recommendations

on how to improve the quality assurance framework for home energy

improvements. As we found in Chapter Four, there were widespread

concerns about the quality of some of the installations that took place

under the Green Deal.

It is vital that the new accreditation scheme should replace existing

regulations, rather than duplicating them, so that new entrants to the

supply chain are not deterred from joining the new scheme by costly and

time-consuming regulation. 153 Less competition among suppliers would

in turn drive up costs for consumers.

Therefore, we recommend that a single, simplified accreditation

scheme should replace the existing Green Deal accreditation scheme

and the separate Microgeneration Certification Scheme for decentralised

renewables. Installers could pay a general registration fee to acquire

accredited status and, within that overall scheme, seek separate

authorisation to install particular home energy improvement measures.

If the installers wanted to become accredited to install other home

improvement measures, they could do so through this scheme.

This would enable consumers to have trust in a new robust brand that

153. Annex, Durham Energy Institute, 2.

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is simpler to understand and has wider public awareness than the old

schemes. It would also minimise the administrative burden on suppliers.

The aggregate effect of this policy could be to stimulate the market,

increasing consumer demand and bolstering the supply chain.

Conclusion

Figure 5.1 summarises all the policies we propose.

Figure 5.1. The new home improvement scheme

Communication

• zRebrand as a home

improvement scheme

and establish a network

of one stop shops

Finance Package

• zNo Golden Rule

• zIntegrated RHI and FIT

• zNew low-cost Help to

improve loans

• z New Help to Improve ISA

Regulation

• zMinimum energy

performance standards

for properties at the

point of sale and at the

point of renovations

Supply Chain

• zReduced registration

fees and training

sessions for SMEs

• zSingle, new

accreditation framework

Together, they create a new deal to significantly increase demand for

a home energy improvement scheme in the able to pay sector.

Although the new home improvement scheme would now not be

suitable for those in fuel poverty, as it is likely that fuel bills will increase

by more than the energy savings from the measures, the Government

has committed to reforming the ECO by 2017 to focus exclusively on the

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Policies for a new home energy improvement scheme

fuel poor. There will be other government policies in place that will help

that group.

We have analysed the different options for homeowners that install

energy efficiency measures and decentralised renewables. There is a

significant need in particular for expensive measures such as solid wall

insulation and heat pumps, which also offer the largest long-term carbon

emission reductions.

The Green Deal scheme set up an innovative financial product and

accreditation scheme to increase take-up of these improvements. But

consumer demand for these measures was low. The proposals in this

report will address the main problems with the Green Deal scheme, to

revitalise the market for home energy improvements in the able to pay

domestic sector in a cost-effective way.

We urgently need a new home energy improvement scheme to

ensure households consume less and greener energy.

83


Annex:

Written evidence

Evidence from Association for the Conservation of Energy

Click here to read the submission

Evidence from Behaviour Change

Click here to read the submission

Evidence from British Gas

Click here to read the submission

Evidence from Donal Brown (CIED)

Click here to read the submission

Evidence from the Durham Energy Institute

Click here to read the submission

Evidence from E.ON

Click here to read the submission

Evidence from Energy and Utilities Alliance

Click here to read the submission

Evidence from the Energy Saving Trust

Click here to read the submission

Evidence from Good Energy

Click here to read the submission

Evidence from Jan Rosenow (CIED)

Click here to read the submission

Evidence from Knauf Insulation

Click here to read the submission

84


Annex

Evidence from Marksman Consulting

Click here to read the submission

Evidence from MIMA

Click here to read the submission

Evidence from Rockwell

Click here to read the submission

Evidence from the RSPB

Click here to read the submission

Evidence from SSE

Click here to read the submission

Evidence from the Sustainable Energy Association

Click here to read the submission

Evidence from the UK Green Building Council

Click here to read the submission

Evidence from WWF-UK

Click here to read the submission

85


Homes in the UK need to consume

less and greener energy so that

important targets for reducing carbon

emissions are achieved. Government

sought to incentivise home energy

improvements by creating the Green

Deal in 2013, but this was a failure

and ended after two years. There is

now a policy vacuum.

This report examines the current

market in energy efficiency measures

and decentralised renewable

technologies, and the possible

reasons for the Green Deal’s failure.

It proposes a new home energy

improvement scheme in the able to

pay sector.

Bright Blue Campaign

www.brightblue.org.uk

connect@brightblue.org.uk

ISBN: 978-1-911128-21-2

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